What if inventory detail does not reconcile to the total current year cost?
It is not uncommon for taxpayers to make adjustments to inventory costs that are not reflected in the inventory detail listing. To the extent possible, taxpayers should apply any adjustments made to year end costs to the inventory detail and account for those adjustments at the item level; however, practically speaking this is not always feasible. When clients are unable to account for adjustment to inventory at the detail level, the current year inflation index is calculated based on the inventory detail that is available; that inflation index is then applied to the total current year cost, which includes any adjustments, in order to calculate the LIFO Reserve. The value of the difference between the inventory detail and current year cost essentially assumes the same inflation factor as is calculated for the overall pool.
