|
Steps of Dollar Value LIFO |
|
 Determine the value of ending
inventory at current cost.
Inventory at current cost --> Inventory
at base year cost
Apply LIFO on the layers
of inventory at base year cost.
LIFO Inventory at base year cost --> Inventory
at added year cost
|
| |
| |
|
Example 1 (Company A) |
Company A adopted Dollar Value
LIFO on January 1, 2006.
| Date |
Inventory
at current year cost |
Cost index |
| 1/1/2006 |
$800,000 |
1.00 |
| 12/31/2006 |
$860,000 |
1.06 |
| 12/31/2007 |
$950,000 |
1.14 |
| 12/31/2008 |
$980,000 |
1.21 |
| 12/31/2009 |
$1,050,000 |
1.27 |
|
| |
|
Example 1 (Solutions, Dollar
Value LIFO) |
|
Application of Dollar Value LIFO
| Date |
Inventory
at base year cost |
Inventory
layers |
Year of
layer |
Inventory
at added year cost |
Inventory
(Dollar Value LIFO) |
| 12/31/2006 |
$811,321
(*1) |
$800,000 |
Base layer |
$800,000 |
|
| |
|
$11,321 |
2006 |
$12,000
(*2) |
$812,000 |
| |
|
|
|
|
|
| 12/31/2007 |
$833,333
(*3) |
$800,000 |
Base layer |
$800,000 |
|
| |
|
$11,321 |
2006 |
$12,000
(*2) |
|
| |
|
$22,013
(*4) |
2007 |
$25,094
(*5) |
$837,094 |
| |
|
|
|
|
|
| 12/31/2008 |
$809,917
(*6) |
$800,000 |
Base layer |
$800,000 |
|
| |
|
$9,917
(*7) |
2006 |
$10,512
(*8) |
$810,512 |
| |
|
|
|
|
|
| 12/31/2009 |
$826,772
(*9) |
$800,000 |
Base layer |
$800,000 |
|
| |
|
$9,917 |
2006 |
$10,512
(*8) |
|
| |
|
$16,854
(*10) |
2009 |
$21,405
(*11) |
$831,937 |
Notes:
(*1)
$860,000 x (1.00/1.06) = $811,321
(*2)
$11,321 X 1.06 = $12,000
(*3)
$950,000 x (1.00/1.14) = $833,333
(*4)
$833,333 - $800,000 - $11,321 = $22,013
(*5)
$22,013 X 1.14 = $25,094
(*6)
$980,000 x (1.00/1.21) = $809,917
(*7)
12/31/2008 inventory decreased from 12/31/2007 by $23,416 at base year cost
($809,917 - $833,333 = -$23,416).
By applying LIFO, $23,416 decrease is
applied to recently added layers first.
--> $22,013 layer added in 2007 is reduced first.
Additional $1,403 (= $23,416 - $22,013) is subtracted from the $11,321 layer
added in 2006.
--> Layer added in 2006 is reduced to $9,917 (= $11,321 - $1,403).
(*8)
$9,917 X 1.06 = $10,512
--> Cost index 1.06 is used because $9,917 layer was added in 2006.
(*9)
$1,050,000 x (1.00/1.27) = $826,772
(*10)
$826,772 - $800,000 - $9,917 = $16,854
(*11)
$16,854 X 1.27 = $21,405
|
| |
|
Click here for
pdf version of solutions to Example 1 (Company A). |
|
|
| |
|
Example 2 (Company B) |
Company B adopted Dollar Value
LIFO on January 1, 2006.
| Date |
Inventory
at current year cost |
Cost index |
| 1/1/2006 |
$650,000 |
1.00 |
| 12/31/2006 |
$760,000 |
1.04 |
| 12/31/2007 |
$810,000 |
1.08 |
| 12/31/2008 |
$830,000 |
1.16 |
| 12/31/2009 |
$960,000 |
1.22 |
|
| |
|
Example 2 (Solutions, Dollar
Value LIFO) |
|
Application of Dollar Value LIFO
| Date |
Inventory
at base year cost |
Inventory
layers |
Year of
layer |
Inventory
at added year cost |
Inventory
(Dollar Value LIFO) |
| 12/31/2006 |
$730,769
(*1) |
$650,000 |
Base layer |
$650,000 |
|
| |
|
$80,769 |
2006 |
$84,000
(*2) |
$734,000 |
| |
|
|
|
|
|
| 12/31/2007 |
$750,000
(*3) |
$650,000 |
Base layer |
$650,000 |
|
| |
|
$80,769 |
2006 |
$84,000
(*2) |
|
| |
|
$19,231
(*4) |
2007 |
$20,769
(*5) |
$754,769 |
| |
|
|
|
|
|
| 12/31/2008 |
$715,517
(*6) |
$650,000 |
Base layer |
$650,000 |
|
| |
|
$65,517
(*7) |
2006 |
$68,138
(*8) |
$718,138 |
| |
|
|
|
|
|
| 12/31/2009 |
$786,885
(*9) |
$650,000 |
Base layer |
$800,000 |
|
| |
|
$65,517 |
2006 |
$68,138
(*8) |
|
| |
|
$71,368
(*10) |
2009 |
$87,069
(*11) |
$831,937 |
Notes:
(*1)
$760,000 x (1.00/1.04) = $730,769
(*2)
$80,769 X 1.04 = $84,000
(*3)
$810,000 x (1.00/1.08) = $750,000
(*4)
$750,000 - $650,000 - $80,769 = $19,231
(*5)
$19,231 X 1.08 = $20,769
(*6)
$830,000 x (1.00/1.16) = $715,517
(*7)
12/31/2008 inventory decreased from 12/31/2007 by $34,483 at base year cost
($715,517 - $750,000 = -$34,483).
By applying LIFO, $34,483 decrease is
applied to recently added layers first.
--> $19,231 layer added in 2007 is reduced first.
Additional $15,252 (= $34,483 - $19,231) is subtracted from the $80,769 layer
added in 2006.
--> Layer added in 2006 is reduced to $65,517 (= $80,769 - $15,252).
(*8)
$65,517 X 1.04 = $68,138
--> Cost index 1.04 is used because $65,517 layer was added in 2006.
(*9)
$960,000 x (1.00/1.22) = $786,885
(*10)
$786,885 - $650,000 - $65,517 = $71,368
(*11)
$71,368 X 1.22 = $87,069
|
| |
|
Click here for
pdf version of solutions to Example 2 (Company B). |
|
|
|
Example 3 (Company C) |
Company C adopted Dollar Value
LIFO on January 1, 2006.
| Date |
Inventory
at current year cost |
Cost index |
| 1/1/2006 |
$300,000 |
1.00 |
| 12/31/2006 |
$430,000 |
1.10 |
| 12/31/2007 |
$480,000 |
1.20 |
| 12/31/2008 |
$485,000 |
1.26 |
| 12/31/2009 |
$550,000 |
1.35 |
Solutions to Example 3:
| Date |
Inventory
(Dollar Value LIFO) |
| 1/1/2006 |
$300,000 |
| 12/31/2006 |
$400,000 |
| 12/31/2007 |
$410,909 |
| 12/31/2008 |
$393,413 |
| 12/31/2009 |
$423,770 |
|
| |
|
Click here for
pdf version of solutions to Example 3 (Company C). |
|
|
