1. What is LIFO COGS?

LIFO (Last-In, First-Out) is an inventory valuation method where the most recently purchased items are assumed to be sold first. The COGS (Cost of Goods Sold) under LIFO reflects the cost of the most recent inventory purchases.

2. How LIFO COGS is Calculated

The LIFO COGS calculation:

Steps:

1. List all inventory purchases in chronological order
2. When items are sold, use the cost from the most recent purchases first
3. Continue using costs from previous purchases until all sold units are accounted for

3. Importance of LIFO Method

Details: LIFO is commonly used in periods of rising prices as it results in higher COGS and lower taxable income. It better matches current costs with current revenues.

4. Using the Calculator

Instructions:

• Enter each purchase on a separate line (quantity, price)
• List purchases in chronological order (oldest first)
• Enter the total units sold
• The calculator will use the most recent purchases first

5. Frequently Asked Questions (FAQ)

Q1: When should I use LIFO vs FIFO?
A: LIFO is better when prices are rising and you want to reduce taxable income. FIFO gives a better representation of inventory value on the balance sheet.

Q2: Is LIFO allowed under IFRS?
A: No, LIFO is not permitted under International Financial Reporting Standards (IFRS), but it is allowed under US GAAP.

Q3: How does LIFO affect financial statements?
A: In inflationary periods, LIFO results in higher COGS, lower gross profit, lower taxes, and lower ending inventory values.

Q4: What is the LIFO reserve?
A: The difference between inventory valued at FIFO and LIFO. It shows how much higher inventory would be if FIFO were used.

Q5: Can I switch between LIFO and FIFO?
A: Switching requires IRS approval and typically results in a one-time tax adjustment. Most companies stick with one method consistently.