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Ltfo method of accounting

Sanjeev Khandelwal (TAX ADVOCATE) (51 Points)

20 December 2013

One of my client is using LIFO method of accounting from last several years, Can he do so. What are the complication he can face.

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As per Accounting Standard (AS) 2 Valuation of inventories specific identification first-in, first-out (FIFO), or weighted average cost formula can be used.

As per section 145 of IT Act where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.]

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Dhruvi N suthar (Account Executive) (303 Points)
Replied 21 December 2013

No As Per As - 2 LIFO method is not allowed for valuation of closing stock only FIFO method would be allowed...& if its not so auditor have to qualify his audit report.

Dhruvi N suthar (Account Executive) (303 Points)
Replied 21 December 2013

However Pratically speacking specific identifiation method is allowed where its easy to assign the cost to product individually & Genrally weighted average method is not used in business however simple average method is used.