Example: Annual LIFO Method of Stock Valuation

When using a LIFO method of stock rotation, you ship the most recently received stock before shipping stock received at an earlier time. This method might result in having stock in inventory that was purchased in previous years. This table lists the remaining stock for two previous years plus the purchase and sales transactions for the current year (2010):

Transaction	Year	Quantity	Average Cost	Value
Stock (layer)	2008	100	10	1000
Stock (layer)	2009	200	12	2400
Purchases	2010	300	15	4500
Sales	2010	(250)	-	-

During 2010, stock increased by 50 units (300 units purchased minus 250 units sold). This increase forms a new layer valued at the average cost for purchases during 2010 (15). This table displays the total value of all stock on December 31, 2010:

Transaction	Year	Quantity	Average Cost	Value
Stock (layer)	2008	100	10	1000
Stock (layer)	2009	200	12	2400
Stock (layer)	2010	50	15	750
LIFO stock value on December 31, 2010	-	350	-	4150

If in 2011 the stock decreased by 100 units, the total stock available on December 31, 2011 was 250 units. Fifty of the 100 unit decrease is deducted from the 50 units in the 2009 layer, and 50 units are deducted from the 2008 layer. This table lists the stock and value on December 31, 2010:

Transaction	Year	Quantity	Average Cost	Value
Stock (layer)	2008	100	10	1000
Stock (layer)	2009	150	12	1800
LIFO stock value on December 31, 2011	-	250	-	2800