This template may be used to determine inventory amounts under the last-in, first-out (LIFO) valuation method. With a minimal amount of input, the template computes the year-end LIFO inventory balance and LIFO reserve, calculates their effect on cost of sales, summarizes the LIFO layers comprising ending inventory and prepares an illustrative financial statement disclosure.
Entering Information
All of the information needed to prepare the LIFO calculations and disclosures are entered on the Input worksheet.
About the LIFO Calculation
The template uses the following steps to compute the pool's LIFO inventory amounts:
Compute the current period cumulative index.
The template computes the current year cumulative index under the link-chain method. That method calculates the current year cumulative index by dividing the inventory pool's current cost (typically determined on a FIFO basis) by the pool's value at beginning-of-year costs and then multiplying the result by the cumulative index at the end of the preceding year. (Alternatively, the double extension method could be used. That method calculates the current year cumulative index by dividing the inventory pool's current cost by the pool's value at base year costs. Both methods normally produce the same results. However, the template uses the link chain method because it generally is easier to apply since determining base year costs for new items becomes more difficult as time goes by.)Calculate the value of the ending inventory pool at base year prices.
That is accomplished by dividing the pool's ending quantities priced at FIFO costs by the current period's cumulative index.Compare the base year cost of the ending inventory with the base year cost of the beginning inventory.
If the inventory at base year costs increased during the year, the increase is multiplied by the current year index to determine the current year increase at LIFO costs. If the inventory at base year costs decreased during the year, prior year inventory layers are reduced starting with the most recent and working backward.Compute the ending LIFO inventory
by adding the current year increase to (or subtracting the current year decrease from) the prior year ending LIFO inventory.