Schweser reading 35 concept checker 29 reading, solution, understand

noel

Hi All, I am not able to understand the solution:
Beginning LIFO reserve is 50,000
Ending LIFO reserve is 60,000
How do we adjust end of period equity…..
Solution: To adjust end of period owner’s equity  don’t consider tax on the retained earnings..
Any ideas..
Thanks in advance…

LorrinCFA

For BS analysis FIFO method of inventory valuation is preferred. If the CO had used the Lifo then we need to add lifo reserve to inventory. Also, we need to lifo reserve to equity(retained earnings) to match increase in inventory(assets).
The question would be about BS ratios. Ignore tax for analysing impact on BS ratios due to change in inventory method. Hope this helps.