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
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