The use of FIFO would have triggered recognition of most of the inventory profit
created by this bargain purchase.
As the shufflers were en route from Vienna on October 31, 2006 and had not yet been received in Las Vegas, the inventory was accrued at the appropriate cost as defined in our transfer pricing policy; however, the remaining inter-company inventory profit
was inadvertently not eliminated.
Lower refined product margins and the absence of an $8 million after-tax LIFO inventory profit
recognized in the fourth quarter of 1990 were offset by lower refinery operating expenses, higher refined product sales volumes, and lower selling, general and administrative expenses.
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).
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
As prices change, companies that value inventory withdrawals at original acquisition (historical) costs may realize inventory profits
Some inventory profits
may be excluded from this provision.
The year 1992 also included after tax LIFO inventory profits
Additionally, inventory profits
(associated with price increases) should decline throughout the second half of 2006 and all of 2007.