In: Accounting
The following data are related to Copy, Paste, and Attach (CPA) Corp’s Ending Inventory (Inventory is valued as of December 31 of each year provided, which is CPA Corp’s year-end):
Year | Price Index | Inventory at End-of-Year Prices |
2015 | 100 | $159196 |
2016 | 125 | $263594 |
2017 | 150 | $304976 |
Using the dollar-value LIFO method, what is the value of CPA Corp’s ending inventory on December 31, 2017?
Answer | ||||||
First of all we have to calculate the ending inventories of each year at base year prices: | ||||||
Lets take 2015 as base year with price index | 100 | |||||
Formula for inventory at base year prices | (Inventory at year end*base year price)/current year price | |||||
For example: for year 2016 | 263594*100/125 | |||||
Year | Price Index | Inventory at End-of-Year Prices | Inventory value at base year prices | |||
2015 | 100 | $159,196 | $159,196 | |||
2016 | 125 | $263,594 | $210,875 | |||
2017 | 150 | $304,976 | $203,317 | |||
Inventory at the end of year 2016 | ||||||
Compare the inventory of 2015 and 2016 at base year price,gives the increase of $(210875-159196) | $51,679 | |||||
Restating the inventory for year 2016 at price index | $51679*125% | 64,599 | ||||
Inventory at Base Year | Index | Inventory at current year | ||||
Inventory 2015 | $150,000 | 100 | $150,000 | |||
Increase in 2016 | $51,679 | 125 | $ 64,599.00 | |||
2016 inventory Value | $201,679 | $214,599 | ||||
Inventory at the end of year 2017 | ||||||
Compare the inventory of 2016 and 2017 at base year price,gives the decrease of $(203317-210875) | ($7,558) | |||||
If there is a decrease we need to adjust it against the most recent increase in inventory(immediate last increase in inventory) | ||||||
Hence a decrease of $7558 will be adjusted against an increase of $51679 equals to | $44,121 | |||||
Now reinstate the inventory of year 2017 at 2016 price index and not 2017 price index | ||||||
Inventory at Base Year | Index | Inventory at current year | ||||
Inventory 2015 | $150,000 | 100 | $150,000 | |||
Adjustement in 2016 | $44,121 | 125 | $ 55,151.67 | |||
2017 inventory Value | $194,121 | $205,152 | ||||
Remarks :No new layer of inevntory is added in case of decrease,only in case of current year ending inventory is greater than base year ending inventory,the inventory difference is reinstated at current year price index | ||||||