1. What is the LIFO Method?

The LIFO (Last-In, First-Out) method is an inventory valuation approach where the most recently acquired items are assumed to be sold first. This method affects cost of goods sold and ending inventory valuation, particularly in times of inflation.

2. How Does the Calculator Work?

The calculator uses the LIFO formula:

Where:

• Last-In Costs — The most recent inventory purchase costs
• Units Sold — Quantity of items sold
• Currency — Monetary unit for the calculation

Explanation: The calculator sorts your inventory costs in reverse chronological order and sums the most recent costs equal to the units sold.

3. Importance of LIFO Calculation

Details: LIFO is important for financial reporting, tax purposes, and inventory management. It typically results in higher cost of goods sold and lower taxable income during periods of inflation.

4. Using the Calculator

Tips: Enter all purchase costs (comma separated), the number of units sold, and select your currency. The calculator will determine which costs to apply using LIFO method.

5. Frequently Asked Questions (FAQ)

Q1: When should I use LIFO method?
A: LIFO is most beneficial when inventory costs are rising, as it reduces taxable income. However, check your local accounting standards as some countries prohibit LIFO.

Q2: How does LIFO differ from FIFO?
A: FIFO (First-In, First-Out) assumes oldest inventory is sold first, while LIFO assumes newest inventory is sold first. This creates different financial outcomes.

Q3: What are the tax implications of LIFO?
A: In periods of inflation, LIFO typically results in higher cost of goods sold and lower taxable income compared to FIFO.

Q4: Does LIFO affect inventory valuation on balance sheet?
A: Yes, LIFO often results in older, potentially outdated costs remaining in ending inventory valuation.

Q5: Is LIFO allowed under IFRS?
A: No, International Financial Reporting Standards prohibit LIFO, but it's permitted under US GAAP.