Dollar Value LIFO

Question 1

Why do companies use dollar value LIFO?

Answer 1

Makes it easier for companies by using pools to keep track of purchases and sales. Also permits companies to use FIFO internally but LIFO for financial reporting.

Reduces the likelihood of having a LIFO liquidation.

Question 2

Equation for Conversion Index

Answer 2

Ending inventory in current year dollars/Ending inventory at base year dollars

Question 3

What are the steps to computing dollar value LIFO?

Answer 3

1. Determine current year layer at base year cost. Convert ending inventory at base year dollars and find the difference between beginning and ending inventory. The difference is your current year layer.
2. Current year layer (step 1) to current year cost
3. Ending inventory is beginning inventory plus current year layer at current year cost.