Some Additional Evidence on the LIFO-FIFO Choice Using Replacement Cost Data

Since the 1939 Revenue Act requires a firm using LIFO for taxes to use LIFO for financial reporting, a firm wishing to minimize its tax payments by the use of LIFO must use LIFO as a reporting method. The tax savings to the firm adopting LIFO equals the difference between FIFO cost of goods sold (CGS) and LIFO CGS times the firm's marginal tax rate. Biddle [1980] presents evidence suggesting that the cash flow consequences of adopting LIFO are different for LIFO and FIFO firms. In this study, Biddle's work was replicated using a different method of estimating cash flow consequences