Question

Problem 8-9 On January 1, 2017, Vaughn Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Vaughn continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Vaughn uses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items are grouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A and B, for the 2 years following the adoption of LIFO. FIFO Basis per Records Units Unit Cost Total Cost Inventory, 1/1/17    Product A 12,400 $53 $657,200    Product B 11,400 44 501,600 $1,158,800 Inventory, 12/31/17    Product A 19,400 64 $1,241,600    Product B 11,400 46 524,400 $1,766,000 Inventory, 12/31/18    Product A 15,400 71 $1,093,400    Product B 12,400 57 706,800 $1,800,200

Compute the internal conversion price indexes for 2017 and 2018. (Round price index to 0 decimal places, e.g. 162.) 2017 2018 Conversion price index LINK TO TEXT

Compute the inventory amounts at December 31, 2017 and 2018, using the dollar-value LIFO inventory method. (Round answers to 0 decimal places, e.g. 5,620.) 2017 2018 Inventory $ $

Answer 1

Ans :-

LIFO :- Last in first out.

FIFO:- First in first out.

Stock details based on FIFO :-

FIFO
INVENTORY AS ON	UNITS	UNIT COST ($)	TOTAL COST ($)
01-01-2017
Product A	12,400	53	6,57,200
Product B	11,400	44	5,01,600
		TOTAL	11,58,800
31-12-2017
Product A	19,400	64	12,41,600
Product B	11,400	46	5,24,400
		TOTAL	17,66,000
01-12-2018
Product A	19,400	64	12,41,600
Product B	11,400	46	5,24,400
		TOTAL	17,66,000
31-12-2018
Product A	15,400	71	10,93,400
Product B	12,400	57	7,06,800
		TOTAL	18,00,200

Now lets calculate the price index for 2017.

YEAR	2017			2018
Particulars	Product A	Product B	POOL	Product A	Product B	POOL
Unit (A)	19,400	11,400		15,400	12,400
Unit Cost ($) (B)	53	44		64	46
Extended cost of Inventory @ Base years price i.e. 1st January(C= A*B)	10,28,200	5,01,600	15,29,800	9,85,600	5,70,400	15,56,000
Extended cost of Inventory @ recent years price i.e. 31st December	12,41,600	5,24,400	17,66,000	10,93,400	7,06,800	18,00,200
Price Index	121	105	115	111	124	116

Thus Price index for 2017 is 115 and 2018 is 116.

Now lets calculate inventory value as ear ends :-

								Amt in $
Date	Ending inventory @ current year cost	Conversion factor	Ending inventoy at base year cost	Increase	Inventoy layers	Conversion factor (base ---- added year)	Inventory layer at added year cost	Dollar value LIFO value
01-01-2017	11,58,800	100	11,58,800	-	11,58,800	100	11,58,800	11,58,800
31-12-2017	17,66,000	115	15,29,800	2,36,200	11,58,800	100	11,58,800
					2,36,200	115	2,71,630	14,30,430
31-12-2018	18,00,200	116	15,56,000	2,44,200	11,58,800	100	11,58,800
					2,36,200	115	2,71,630
					2,44,200	116	2,83,272	17,13,702

Therefore Inventory value as per Dollar value LIFO method is :-

31.12.2017 - $ 1430430

31.12.2018 - $ 1713702