In adjusting base year income, an appraiser must be aware of the implications of various accounting methods for value. During periods of inflation, businesses frequently use the last-in, first out method to value inventories. This approach results a reduction in the cost of sales and an increase in gross profits and taxable income.

Question

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During periods of inflation, the last-in, first-out (LIFO) method results in the most recent, higher-cost items being recognized as the cost of sales, leading to higher reported costs of goods sold, lower gross profits, and lower taxable income, not an increase in gross profits and taxable income.

In Adjusting Base Year Income, an Appraiser Must Be Aware