Inventory

Question 1

DV LIFO

Answer 1

Review differences with Unit based LIFO etc

Question 2

DV LIFO Summary

Answer 2

Start with EI at Current prices and adjust to Base Year Cost with Price Index.
Compare to BI at DV LIFO to get the Delta
Convert Delta to Current Year with Index
Add to BI to get Ending DV LIFO

Question 3

Retail Method

Answer 3

Convert EI at Retail to EI at COST or Calc COGS
Cost to Retail Ratio is on GAFS
Need Cost to Retail Ratio and Apply this to EI at Retail
EI at Retail is BI + P = GAFS - Sales = EI

Adjustments to Cost Side, Retail Side and to Ratio (Above the Line) and to EI (Below the Line)

Above the Line: Freight In is COST only and Net Markups is Retail only. Purchase Returns (x) and Abnormal Shortage apply to both.

Below the Line:ALL under Retail only to get to EI and only Sales Returns ADDS to GAFS to get EI, the rest all reduce GAFS.

Question 4

DV LIFO RETAIL

Answer 4

General Rule: apply in order (CV, LIFO, Retail)
Need to get the layer
Need to get the Ratio

Question 5

Advantages of DV LIFO

Answer 5

B.
Reduces the Effect of the Liquidation Problem – The Dollar-Value LIFO conversion technique takes a company’s ending inventory in FIFO dollars (usually) and converts them to LIFO dollars. In doing so, the impact of the liquidation problem is reduced.
C.
Allows Companies to Use FIFO Internally – Most companies prefer to use FIFO for internal management reports and internal operating decisions. Dollar-Value LIFO allows companies an opportunity to do so.
D.
Reduces Clerical Costs – As mentioned earlier, most LIFO companies prefer LIFO for external reporting purposes and prefer FIFO for internal purposes. Through the use of Dollar-Value LIFO, a company can maintain a FIFO system for internal purposes, and then convert those results to LIFO for external purposes. Please note that through the use of Dollar-Value LIFO, a company must maintain only a single inventory system (FIFO) during the accounting period, thus reducing clerical costs.