Just wanted to clarify; in looking at automobile dealer statements, the LIFO reserve is presented on the right hand [liability] side of the balance sheet. Is it acceptable for the balance to be presented as a long term liability or should it more properly be shown as an adjustment to the inventory balance on the asset side?
The LIFO reserve shouldn’t be shown on a balance sheet at all; it should be part of the notes.
Do you have an example of a company that shows it on their balance sheet?
I have statements from an automotive dealer. The LIFO reserve balance total, as presented, has to be added to the total of all liabilities and the total equity account in order to balance to total assets. Otherwise, total assets would need to be adjusted to be reduced for the effect of the contra account, which has a credit balance.
Then something weird’s going on. It sounds as if they’re using FIFO on their balance sheet, but LIFO on their income statement.
In any case, it’s not US GAAP compliant. Under US GAAP, the LIFO reserve is simply a number that appears in the footnotes; it’s never used on the face of the balance sheet.
If it makes any difference, these statements are in “dealer format” which would not be configured to be GAAP compliant. I suppose, then, that the appropriate thing to do under the circumstances, is to reduce the total inventory and total assets by the LIFO reserve and show a restated lower total assets amount.
Aha!
That’s what I would do.