Inventory price index

An inventory price index compares the current cost of a defined pool with its cost at base-year prices. Divide the pool's ending inventory at current cost by the current index. The result is the pool at base-year cost. Compare that amount with the base-year cost represented by existing layers.

This conversion prevents a price increase from becoming a false quantity layer. A pool can cost more at year-end because prices rose, because the entity holds more goods, or because both changed. Dollar-value LIFO creates a new layer only for the increase that remains after the price effect is removed.

The index must match the pool and period. An internal index can compare the entity's current item costs with base-year costs. An external index can be used only when its goods, market, and timing support the pool being measured. A broad consumer price index measures a different basket and purpose; it is not an automatic inventory index.

Trace the direction through the whole schedule. With the same current-cost ending balance, a higher index produces a lower base-year balance. That can reduce a new layer or produce a liquidation. It does not prove that physical units fell. Pool composition and product mix can also change, so the reviewer needs the item data and method documentation behind the index.

ASC 330-10-30-9 permits several cost-flow assumptions when they best express periodic income. ASC 330-10-30-13 addresses selection of an inventory method. Those paragraphs support the cost-flow setting. They do not select a price index for a particular pool.

Work through the checked Cedar Trail pool schedule before reviewing an index choice.