The IVA adjusts the NIPA estimates of business income for inventory profits
or losses; the IVA is the difference between the cost of inventory withdrawals valued at acquisition cost and the cost of inventory withdrawals valued at replacement cost.
These generally favorable conditions, together with substantial inventory profits
from the rising prices, produced good profit margins.
Accounting corrections are used to remove inventory profits
(line 2) and put depreciation on the replacement-cost basis (line 3).
Companies that use LIFO to minimize the taxation of illusory inventory profits
should never forget that LIFO can turn around and bite them when inventory levels decline.
Additionally, inventory profits
(associated with price increases) should decline throughout the second half of 2006 and all of 2007.
The accounting theory supporting LIFO is the belief that it provides a better matching of current costs with current revenues, thereby eliminating inventory profits
from the taxpayer's earnings.
The 1992 year and fourth quarter results also included LIFO inventory profits
NASDAQ:EILL) announced that during the course of their audit for the fiscal year ended December 31,1998 subsequent to year end, the Company determined that an error related to the elimination of inter-company inventory profits
affected operating results during the three previous quarters in fiscal 1998.
As prices change, companies that value inventory withdrawals at original acquisition (historical) costs may realize inventory profits
The year 1992 also included after tax LIFO inventory profits
Although it is difficult to quantify, we believe this resulted in inventory profits
that enhanced operating income by several million dollars in 1995 and inventory losses of a comparable amount in 1996.
Notwithstanding the above, first quarter results were down from last year principally due to LIFO inventory profits
in the prior year's first quarter relating to a reduction of cigarette inventories in the wholesale distribution business.