Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

CPI-CONSUMER PRICE INDEX: A measure of change in consumer prices (inflation) as
determined by a monthly survey conducted by the Bureau of Labor Statistics.
CUMULATIVE INDEX: In the LIFO "Link Chain Method," the product of all annual indices
dating back to the year of election. It is used to restate current-year cost to base year costs. This
index is also used to value increments of base-year cost.
CURRENT YEAR COST (CYC): Total current-year cost of items, using LIFO, may be
determined in one of four ways:
1. by referring to the actual cost of the items most recently purchased;
2. by referring to the actual cost of the items purchased during the taxable year in the order of
acquisition;
3. by the application of an average unit cost equal to the aggregate cost of all goods purchased
during the taxable year;
4. any other proper method which clearly reflects income.
CUT-OFF METHOD: A method of changing a method of accounting on a prospective basis
without an adjustment under IRC section 481(a). In the context of Alternative LIFO, there is no
change to prior LIFO indices or layers.
DECREMENT: A decrease in a LIFO pool for a year when the end of the year quantity of the
pool at base-year cost is less than the beginning of the year quantity of the pool at base-year cost.
DOLLAR VALUE METHOD: The dollar-value method of valuing LIFO inventories is a
method of determining costs by using base-year costs expressed in terms of total dollars rather
than using the quantity and price of specific goods as the unit of measurement.
DOUBLE EXTENSION METHOD: A method of computing the LIFO value of a dollar value
pool. Under this method the quantity of each item in the inventory pool at the close of the taxable
year is extended at both base-year unit cost and current-year cost.
EARLIEST ACQUISITIONS: This is one of three methods specifically mentioned under
dollar-value LIFO to determine the current-year cost of the ending quantity of inventory. This
method involves repricing all of the items on hand at the end of the year at the earliest price paid
for the item.
EXPRESSED WARRANTY: Specifically stated in contract, controlled by conditions attached
to it.
EXTERNAL METHOD: A method of computing a dollar-value LIFO index where the indices
are generated by information taken from any source other than the taxpayer data.
E-2