Cambrige AS and A Level Accounting Notes (9706)/ ZIMSEC Advanced Accounting Level Notes: Inventory valuation: Inventory valuation methods: Last In First Out (LIFO): Example Question
If you are viewing this post on a small screen/mobile device please view it in Landscape Mode otherwise it will be distorted.
- This is a solution to the question found here
- To learn more about the LIFO inventory valuation method click here
- You can learn more about inventory valuation methods here
The Solution
- Under LIFO it is assumed the first items bought are sold last
| Date | Receipts | Sales | Balance | ||||||
| Units | Unit Cost ($) | Total Cost($) | Units | Unit Cost($) | Total Cost($) | Units | Unit Cost ($) | Total Cost($) | |
| Op/Bal | 50 | 30.00 | 1 500 | ||||||
| Jan 8 | 30 | 30.00 | 900 | 20 | 30.00 | 600 | |||
| Jan 10 | 100 | 30.00 | 3 000 | 120 | 30.00 | 3 600 | |||
| Jan 12 | 80 | 30.00 | 2 400 | 40 | 30.00 | 1 200 | |||
| Jan 21 | 120 | 30.50 | 120 | 30.50 | 3 660 | ||||
| 40 | 30.00 | 1 200 |
|||||||
| 160 | 4 860 | ||||||||
| Jan 28 | 90 | 30.50 | 2 745 | 30 | 30.50 | 915 | |||
- | - | - | 40 | 30.00 | 1 200 |
||||
| 90 | 2 745 | 70 | 2 115 | ||||||
| Feb 1 | 30 | 30.50 | 915 | 20 | 30.00 | 600 | |||
20 | 30.00 | 600 | - | - |
|||||
| 50 | 1 515 | 20 | 600 | ||||||
| Feb 14 | 150 | 31.00 | 4 650 | 150 | 31.00 | 4 650 | |||
20 | 30.50 | 610 |
|||||||
| 170 | 5 260 | ||||||||
| Feb 23 | 100 | 31.00 | 3100 | 50 | 31.00 | 1 550 | |||
- | 30.50 | 0 | 20 | 30.50 | 610 |
||||
| 100 | 3 100 | 70 | 2 160 | ||||||
| Mar 1 | 30 | 31.00 | 930 | 20 | 31.00 | 620 | |||
- | - | - | 20 | 30.50 | 610 |
||||
| 30 | 930 | 40 | 1 230 | ||||||
| Mar 4 | 120 | 31.50 | 3 780 | 120 | 31.50 | 3 780 | |||
| 20 | 31.00 | 620 | |||||||
20 | 30.50 | 610 |
|||||||
| 160 | 5 010 | ||||||||
| Mar 19 | 120 | 31.50 | 3 780 | 20 | 31.00 | 620 | |||
- | - | - | 20 | 30.50 | 610 |
||||
| 120 | 3 780 | 40 | 1 230 | ||||||
| Mar 23 | 100 | 32.00 | 3 200 | 100 | 32.00 | 3 200 | |||
| 20 | 31.00 | 620 | |||||||
20 | 30.50 | 610 |
|||||||
| 140 | 4 430 | ||||||||
| Mar 27 | 100 | 32.00 | 3200 | 20 | 30.50 | 610 | |||
20 | 31.00 | 620 | - | - | - |
||||
| 120 | 3 820 | 20 | 610 | ||||||
- Since these are the only transactions that took place according to the question
- On 31 March 20×8 the inventory balance would be:
- 20 units @ $30.50 per unit this translates to:
- $610
- Here we used the continuous method i.e. every time there was a purchase an issue we updated the inventory record
- Using a periodic record:
| $ | |
| Total Sales for the quarter | 640 |
| Purchases and Opening inventory | 620 |
| Remaining inventory | 20 |
- There are 20 units left with LIFO we assume this is from the oldest inventory which was the Opening Inventory:
- So using the periodic method the value of inventory would be:
- 20 units @ $30
- $600
- As illustrated above the Period-end and Continuous methods of record keeping can yield different results
To access more topics go the ZIMSEC Advanced Level Accounting page
To access more topics go to the Cambridge AS/A level page
