In: Accounting
Retail Corp adopted the dollar-value LIFO method on 1-1-2016
Date |
Year-end inventory at year-end cost |
Cost index at date indicated |
separate into layers and multiply by own index | sum recomputed layers | |
1-1-16 |
$3,420,000 |
1.00 |
|||
12-31-16 |
$4,000,000 |
1.07 |
|||
12-31-17 |
$4,100,000 |
1.10 |
Given the above information, please answer the following questions:
2A. What is the base inventory value ($)?
2B. What is the dollar-value LIFO inventory at 12-31-16?
2C. What is the dollar-value LIFO inventory at 12-31-17?
2A Base inventory Value
Base inventory value would be the inventory reported at the end of the year, as the index given is also 1.
Inventory at date 1-1-16 can directly be taken as a base inventory value.
Base Inventory Value = $ 3,420,000
2B Dollar Value
LIFO inventory at 12-31-16
Step 1: Compute the value of ending inventory taking out the effect
of inflation i.e. at beginning of the year prices as follows:
= $ 4,000,000 x 1/1.07 = $ 3,738,318
Step 2: Compare the figure calculated in step 1 with opening inventory value to determine the increase or decrease
= $ 3,738,318 - $ 3,420,000 = $ 318,318
Step 3: Gross up the change determined in step 2 as per current year’s price index
= $ 318,318 x 1.07 = $ 340,600
Step 4: Now calculate the value of ending inventory by adding the value determined in step 3 in beginning inventory value:
= $ 3,420,000 + $ 340,600 = $ 3,760,600
2C Dollar Value LIFO inventory at 12-31-17
Step 1: Compute the value of ending inventory taking out the effect of inflation i.e. at beginning of the year prices as follows:
= $ 4,100,000 x 1/1.10 = $ 3,727,273
Step 2: Compare the figure calculated in step 1 with opening inventory value (calculated in 2B) to determine the increase or decrease
= $ 3,727,273 - $ 3,760,600 = $ 33,327 Credit
Step 3: Gross up the change determined in step 2 as per current year’s price index
= $ 33,327 x 1.1 = $ 36,660 Credit
Step 4: Now calculate the value of ending inventory by adding the value determined in step 3 in beginning inventory value:
= $ 3,760,600 - $ 36,660 = $ 3,723,940