Dollar-value LIFO

Dollar-value LIFO applies LIFO to a defined pool measured in dollars. It does not treat the pool as one permanent layer. Each increase in base-year cost creates a dated layer, and each layer keeps the price index from the year it was created.

Build the schedule in four steps:

1. Divide ending inventory at current-year cost by the current inventory price index.
2. Compare that base-year amount with the base-year cost of the prior layers.
3. Add a layer when the base-year amount increased. If it decreased, remove the newest base-year layer first.
4. Multiply each surviving layer by its own index and add the indexed amounts.

The first conversion removes price change from the quantity comparison. The last conversion restores the prices attached to each layer. Applying the current index to every layer would erase the LIFO history and overstate or understate the schedule.

Three judgments sit outside the arithmetic. Management defines the pool, supports the index, and preserves the base year and layer history. In a broad pool, increases in some goods can offset decreases in others. Poorly matched index data can change whether the schedule shows a new layer or a liquidation. The reviewer therefore ties the pool membership and index data to the detailed inventory records before accepting the computed total.

A decrease in base-year cost removes the newest layer first. If an old layer is liquidated, older indexed cost enters cost of goods sold. The resulting profit effect needs separate analysis; the layer schedule alone does not show whether operations improved.

ASC 330-10-30-9 addresses LIFO as a cost-flow assumption. ASC 330-10-50-1 requires disclosure of the basis used to state inventories and consistent use of that basis. Neither paragraph proves that a selected pool or index is well supported.

Use the checked pool schedule and then complete the schedule practice.