Hello all!
I came across the below example and it got me thinking… I realise we keep purchases constant when calculating the FIFO COGS from the Beginning and Ending LIFO reserve values.
Can there ever be a scenario where purchases are affected by the LIFO reserve calculations? (i.e. where purchases are not kept constant)?
I would greatly appreciate anyone’s perpective on this!
Year-end inventory = $2m Beginning inventory = $3m LIFO reserve at year-end = $1m LIFO reserve at the beginning of the years = $500,000 COSG = $5m Purchases = ending inventory - beginning inventory + COGS (LIFO) Purchases = $2m - 3m + $5m = $4m Ending inventory (FIFO) = ending inventory (LIFO) + ending period LIFO reserve Ending inventory (FIFO) = $2m + $1m = $3m Beginning inventory (FIFO) = beginning inventory (LIFO) + beginning LIFO reserve Beginning inventory (FIFO) = $3m + $0.5m = $3.5m COGS (FIFO) = purchases + beginning inventory (FIFO) - ending inventory (FIFO) COGS (FIFO) = $4m + $3.5m - $3m = $4.5m