Why this is mistaken
Pooling changes the unit of account, but it does not remove the LIFO layer history. Each layer retains the index from the year in which it arose. When the pool decreases at base-year cost, the newest layer is removed first. Repricing all layers at the current index changes the method and produces the wrong ending amount.
Where to watch
When this mistake may appear
- Multiply the full base-year pool by this year's index.
- Pooling replaces all layer history.
- A liquidation reduces every layer proportionally.
Check your work
Your work may contain this mistake if:
- Reprices prior layers at the current index or liquidates layers without removing the newest base-year layer first.