Cambrige AS and A Level Accounting Notes (9706)/ ZIMSECĀ  Advanced Accounting Level Notes: Inventory valuation: Inventory valuation methods: Last In First Out (LIFO): Example Question

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The Solution

  • Under LIFO it is assumed the first items bought are sold last
DateReceiptsSalesBalance
UnitsUnit Cost ($)Total Cost($)UnitsUnit Cost($)Total Cost($)UnitsUnit Cost ($)Total Cost($)
Op/Bal5030.001 500
Jan 83030.009002030.00600
Jan 1010030.003 00012030.003 600
Jan 128030.002 4004030.001 200
Jan 2112030.5012030.503 660
4030.00

1 200

160 4 860
Jan 289030.502 7453030.50915

-

-

-

40

30.00

1 200

902 745702 115
Feb 13030.509152030.00600

20

30.00

600

-

-

501 51520600
Feb 1415031.004 65015031.004 650

20

30.50

610

1705 260
Feb 2310031.0031005031.001 550

-

30.50

0

20

30.50

610

1003 100702 160
Mar 13031.009302031.00620

-

-

-

20

30.50

610

30930401 230
Mar 412031.503 78012031.503 780
2031.00620

20

30.50

610

1605 010
Mar 1912031.503 7802031.00620

-

-

-

20

30.50

610

1203 780401 230
Mar 2310032.003 20010032.003 200
2031.00620

20

30.50

610

1404 430
Mar 2710032.0032002030.50610

20

31.00

620

-

-

-

1203 82020610
  • 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 quarter640
Purchases and Opening inventory620
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

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