Periodic and perpetual FIFO always arrive at the same results. Perpetual LIFO: ending inventory $538 and cost of goods sold $950 Periodic LIFO: ending inventory $440 and cost of goods sold $1,048 Once again, the last cell in the “inventory on hand” column contains the asset figure to be reported on the balance sheet (a total of $538) while the summation of the “cost of goods sold” column provides the amount to be shown on the income statement ($950).Īs can be seen here, periodic and perpetual LIFO do not necessarily produce identical numbers. That is $110 per unit or $440 in total.įigure 9.9 Perpetual LIFO-Bathtub Model WET-5 According to LIFO, the last costs are transferred to cost of goods sold only the cost of the first four units remains in ending inventory. Four bathtubs remain in stock at the end of the year. The reported figure that changes is the cost of the ending inventory. Thus, for this illustration, beginning inventory remains $440 (4 units at $110 each) and the number of units purchased is still eight with a cost of $1,048. In a periodic system, only the computation of the ending inventory is altered by the choice of a cost flow assumption 1. How is LIFO applied to the inventory of an actual business? If the Mayberry Home Improvement Store adopted LIFO, how would the reported figures have been affected by this decision?Īnswer: Periodic LIFO. Question: LIFO reverses the FIFO cost flow assumption so that the last costs incurred are the first reclassified to cost of goods sold.
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