In short
Dollar-value last-in, first-out (LIFO) applies LIFO to pools of inventory measured in dollars instead of units, using a price index to separate real increases in quantity from price changes.
Key takeaways
- Convert ending inventory to base-year prices with the index, then compare with the prior year to find any new layer.
- A new layer is valued at base-year cost × the current year's index.
- A decrease removes the most recent layers first.
Example
Ending inventory of $132,000 at current cost with an index of 1.10 is $120,000 at base-year prices. Against $100,000 last year, the $20,000 layer × 1.10 = $22,000, so inventory is $122,000.
Where it's tested
FAR: Inventory — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company uses LIFO for both tax and financial reporting. During a period of rising prices, which of the following is true relative to FIFO?