LIFO liquadation solution 1 example 3 Inventories, FRA

It says the decrease in LIFO reserve is not enough to determine the exact amount of LIFO liquadation. What does this mean? It doesnt make any sense at all.

Yes, it does not make sense for me too.

I would fix the wording of the last sentence as following:

“The decrease in the LIFO reserve is indicative of a LIFO liquidation but it is not sufficient to determine the exact amount of which the costs of products sold decreased

I mean that cost of products sold decreased $12.1 million, but the LIFO liquidation only explains $10.7 million of that decrease. So $1.4 million decrease in cost of products sold comes from other sources, maybe deflation currently happenning.

Yes, as Peru suggests the LIFO Reserve can and will change independent of a LIFO Liquidation. Remember, the reserve is measuring the difference in Inventory value between LIFO and FIFO. So, in one period you can compare an old $30 LIFO layer to new units at $40, and then next year compare that exact same $30 layer to new $45 units. And your LIFO reserve will increase, even if you don’t add any units to it.

yes, i was hoping too that it would be considered in the same way. I guess the MDA doesnt justify the differences in values. I hope that is what they meant.

Thanks for the information :slight_smile: