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Which method ( FIFO or LIFO) would be preferred for income tax purposes in periods of?

(a) rising prices and (b) declining prices?

In periods of rising prices (inflation) you would want LIFO. In periods of declining prices (deflation) you would want FIFO.

The main benefit of LIFO is that it runs the more expensive current inventory costs through the income statement, therefore giving you more deduction in times of inflation. The main benefit of FIFO is that it puts the more current inventory costs on your balance sheet, therefore giving you more deduction on your income statement in times of deflation.

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