Build and review a dollar-value LIFO pool

A current-cost inventory total mixes two movements: changes in prices and changes in the goods represented by the pool. Dollar-value LIFO separates them before it assigns a new layer or removes an old one.

Fix the measurement unit

Define the pool and base year before computing an index. The pool should remain consistent enough for comparisons across periods. Document which items enter, how replacements are treated, which records supply current and base costs, and which index method applies.

An inventory price index is a conversion ratio for that defined pool. It is not the inflation rate and does not by itself show whether the pool contains more goods. Divide current cost by the index to express the ending pool in base-year dollars.

Build the layers in base-year dollars

Compare the ending base-year amount with the total base-year cost in existing layers. An increase creates a current-year layer. A decrease removes the newest layer first and continues backward only if the decrease exceeds that layer. This step preserves the LIFO order without tracking every physical unit.

Next, price every surviving layer at the index from the year it arose. Add the indexed layer amounts to obtain ending dollar-value LIFO inventory. Do not use the current index for prior layers.

Reconcile:

• current cost divided by the current index to ending base-year cost;
• prior base-year layers plus an addition or minus a liquidation to ending base-year cost; and
• each layer's base-year cost times its own index to reported ending inventory.

Review the choices behind the result

A correct schedule cannot establish that the pool or index is appropriate. Trace pool membership to item records. Test whether the index covers the same goods and period. Tie each prior layer to the approved schedule from its year of origin. Investigate changes in product mix that a broad pool may offset.

A liquidation can move an older indexed cost into cost of goods sold. Separate that layer effect from operating performance and connect it to the related LIFO disclosure. ASC 330-10-30-9 provides the cost-flow setting, while ASC 330-10-50-1 addresses the disclosed inventory basis and consistency.

Rebuild the Cedar Trail example first. Then complete the liquidation practice, show the three reconciliations, and state which judgment remains outside the calculation.