Dollar Value LIFO Method
The dollar value LIFO method is another approach used for inventory valuation, it follows the last in first out but take into consideration the impact of inflation. The dollar value LIFO method is derived from the LIFO method and it’s designed to overcome the main problem of LIFO method which is liquidation. The dollar value LIFO method groups all type of goods in the inventory in a pool and the pool is measured by the total dollar amount instead of physical quantity. The balance sheet view differ under the dollar value Lifo method from the other inventory valuation methods. The dollar value LIFO method is used to eliminate the inflation effect in order to get accurate results, if the inflation has no impact the result of the dollar and non-dollar methods would give the same result.
The dollar value LIFO method solved the problem of LIFO method which is liquidation. Liquidation problem appears when the goods of this year is sold and company begin to sell goods from previous years that have lower cost resulting in a lower cost of goods sold leading to higher net income and taxes. The dollar value method use the base year which is expressed in total dollars rather than quantity of specific goods as a unit of measurement and the increases and decreases in the pool are measured in terms of total dollar value instead of …show more content…
The inventory is considered as quantity of value consisting of annual layers. Each layer is pool of the entire inventory purchased during the year so the ending inventory value depends on the dollar value of those items and not on their counts. By using this method of valuing inventory, companies can include a wide range of goods in the pool. Unlike the LIFO method in which the inventory is measured by the quantity of physical
The dollar value LIFO method solved the problem of LIFO method which is liquidation. Liquidation problem appears when the goods of this year is sold and company begin to sell goods from previous years that have lower cost resulting in a lower cost of goods sold leading to higher net income and taxes. The dollar value method use the base year which is expressed in total dollars rather than quantity of specific goods as a unit of measurement and the increases and decreases in the pool are measured in terms of total dollar value instead of …show more content…
The inventory is considered as quantity of value consisting of annual layers. Each layer is pool of the entire inventory purchased during the year so the ending inventory value depends on the dollar value of those items and not on their counts. By using this method of valuing inventory, companies can include a wide range of goods in the pool. Unlike the LIFO method in which the inventory is measured by the quantity of physical