Last In First Out (LIFO) is the inventory method that creates tax gain when raw material price is increasing day by day. It works in the following way :-
In LIFO we issue materials at the latest entered price, that means materials entered last should be issued first. So in that way materials at high price issued first. This will increase Cost Of Goods Sold (CGS/COGS) and decrease Gross Profit which leads to a Tax reduction.
In LIFO we issue materials at the latest entered price, that means materials entered last should be issued first. So in that way materials at high price issued first. This will increase Cost Of Goods Sold (CGS/COGS) and decrease Gross Profit which leads to a Tax reduction.
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