In United States of America this method of inventory accounting is very popular and frequently used, reason behind by applying this method their P & L A/c show less Net Income and therefore they have less burden of Taxes.
LIFO Cost Flow Assumption (last-in, first-out) This cost flow assumption was developed for tax purposes. However, because of tax law requirements, if a company uses this assumption for tax purposes it must also use it for its financial statements. ("LIFO conformity rule") It does not coincide with the actual movement of goods. LIFO is used during inflation to defer income tax payments. Under LIFO the goods in inventory at the beginning of the period are assumed to remain in the ending inventory (perhaps for decades). Obviously, this does not actually happen! Remember, this is an assumption only. LIFO is a method to defer taxes until the "beginning" inventory is sold (either because the company changes to a different method or because it has not replenished its inventory of the particular goods or class of goods). If this event occurs, the lower cost of goods (based on costs incurred at a much earlier time) will result in higher income and correspondingly higher income taxes. In other words, the taxes deferred during earlier times will now become payable, assuming there have been no changes in tax law/rates. LIFO requires significant record keeping and careful management of purchases. It also results in significantly understated inventory values (assets) if it has been used for a significant length of time and/or if there is significant inflation. However, it results in significant tax savings (cashflow!).
https://www.csun.edu/~hfact004/lifo_cost_flow_assumption.htm
The above citation should give you the answer you seek. As an accounting rule it does not reflect economic reality but is chosen usually for tax considerations (just like methods of depreciation). In inflationary times, the cost of the latest additions to inventory go up over time thereby increasing your cost basis and lowering profits (and therefore taxes). As an aside, it lowers your assets on the balance sheet since your inventory is at lower cost. However there is no guarantee that costs continue to go up so that you could be using lower cost inventory in those periods. Also as the citation above explains there are situations that you use up your inventory so that your costs may be very low (assuming it was in inventory for years) and your profits are higher. So in that event you are deferring taxes for a long period.
Thanks Lee Siegel for providing this information which is quite useful
Thanks once again
Lee's answer is quite good and cannot add an answer.
But LIFO based on international standards is not allowed, it is good to be used in US
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