Inventory – Dollar Value LIFO

Basic benefits of dollar value lifo Simplifies recordkeeping -determining replacement cost less work than tracking historical costs Could be used with periodic or perpetual (tracking units, not unit cost) Keeps items in general cost pools –similar item replaces older item, so not liquidated Avoids LIFO liquidation which tracks individual costs create internal cost indexes

Steps involved in calculating Dollar Value LIFO This year’s ending inventory is expressed in replacement cost end of current period (current wholesale price). Convert this current period’s ending inventory to base year (divide by current index) Compare current year’s ending inventory at base prices to last year’s ending inventory at base prices –calculate an increase or a decrease at base price If difference is positive (increase), add a layer, multiply base price increase by current price index and this year’s ending inventory will be larger than last year by this new layer. If difference is negative (decrease), decrease a previous layer, multiply base price decrease by the index of the last layer added and subtract from that last layer added, to determine the ending inventory this year. This year’s ending inventory will be smaller than last year by the decrease in the last layer added.