Why is LIFO not used in foreign countries?

Question

I am taking an accounting course and have read in my textbook that LIFO (Last In First Out) is not permitted in Australia and the UK.

I would like to know why.

Answer 1

I'm only guessing, but....

For accounting purposes, the LIFO principal would allow the company to expense recent 'inflated' costs for older pre-inflation costs. This would lower their tax burden.

For example, suppose that SPLATT Oil Unlimited had an inventory of 100 million barrels at the old $40 per barrel and purchased 50 million barrels at $60 per barrel. If they used 60 million barrels in their refinery and used LIFO, their cost would be (50,000,000 * 60 + 10,000,000 *40) or $3,400,000,000. If they had to use FIFO, the cost would be, 60,000,000*40 or $2,400,000,000.

Since the cost would be $1,000,000,000 less, the taxes on earnings would be more.