Why is LIFO allowed in accounting? I was reading about inventory valuation and of course there is first-in - first-out, last-in - first-out and weighted average. I realized at some point that LIFO would cause the highest Cost Of Goods Sold and therefore the lowest profit, in situations where the cost of purchased inventory was rising, so I figured that was a stupid method. But the book I was reading said that LIFO is commonly used in the US as part of Generally Accepted Accounting Practices (bingo!) and not allowed by international standards (IFRS).

So I wondered why a company would want to under-report profit? Well, because it lowers taxes. Is that really such a powerful reason? Wouldn't the increased profit be higher than the increased taxation in normal cases? Is this just an attempt to spite the government or something?

Also, I read that occasionally, the old inventory that has been "on the books" for a long time at a very undervalued cost can be "sold off" and generate a profit spike (just in case you did want to earn some money). These kind of machinations are unintuitive, to me.

My question is, why was this crazy method allowed at all? Historical reasons? Because it took a while for government to wise up? Why has it not been killed off because it is manipulating tax revenue and corporate reporting?
well, LIFO also lowers the value of held inventory too...IF one special thing is occurring:  Inflation.

When there is inflation, LIFO makes things look, well, a little bit better.  During deflation (or flat) FIFO makes more sense.