LIFO Calculations

The LIFO costing method assumes that the last inventory items purchased are the first ones sold. This costing method determines the stock value and cost of goods sold based on the sale of the newest stock first. That is, the inventory that has been in stock the shortest amount of time is sold first. This method results in an ending inventory balance based on the costs associated with the oldest inventory. This method also requires that the system record historical costs for all years with stock remaining for that year.

Because the purpose of the LIFO method is to reflect the inventory value accumulation or depletion at the end of the year, you must adjust the entries that you log at the end of each period to remove the effect of any accumulation or depletion. This adjustment is called a LIFO adjustment. You must do a LIFO adjustment for all periods except the last period of the year. The system records the LIFO adjustment against the income statement and balance sheet accounts.

Suppose that you apply the LIFO costing method to four receipts that include five items each. This table lists the price that you paid for each receipt:

Receipt Number	Amount
Receipt 1	1.00 USD
Receipt 2	1.50 USD
Receipt 3	2.00 USD
Receipt 4	2.50 USD

The total value of the inventory is 35.00 USD, which you calculate using this equation:

(1 × 5) + (1.5 x 5) + (2 x 5) + (2.5 x 5) = 35.00

Suppose that you are using the LIFO costing method and you sell five items for 2.50 USD each. In this case, the total value of the inventory is 22.50 USD, which you calculate using this equation:

(1 × 5) + (1.5 x 5) + (2 x 5) = 22.50

Next, suppose that you sell another five items for 2.00 USD each. In this case, the total value of the inventory is 12.50 USD, which you calculate using this equation:

(1 × 5) + (1.5 x 5) = 12.50

The JD Edwards EnterpriseOne Advanced Stock Valuation system lets you calculate LIFO on a periodic or annual basis. Period LIFO considers stock increments and decrements individually by period; annual LIFO considers overall increments and decrements that occurred over the course of the year.

You specify in the Stock Valuation Constants whether to run the valuation process in annual or period mode. Because you specify the valuation process by company in the constants, if you specify the annual LIFO method for a company, you must run all methods for the company (such as FIFO or Weighted Average) in annual mode.

This table describes the annual LIFO stock valuation methods:

Time Period	Stock Valuation Used
First year	Stock is evaluated using the average total unit cost method for all purchases completed in the period considered.
Subsequent years	One of these methods applies: If the number of units of stock has increased from the ending number of units for the previous year, the additional stock is a new layer and is added to the previous layers. The value of this layer is determined by calculating the weighted average between the purchase prices for the stock over the period considered. If the number of units of stock has decreased from the ending number of units for the previous year, the decrement is deducted from the layers added in previous years, beginning with the most recent year.

Time Period

Stock Valuation Used

First year

Stock is evaluated using the average total unit cost method for all purchases completed in the period considered.

Subsequent years

One of these methods applies:

If the number of units of stock has increased from the ending number of units for the previous year, the additional stock is a new layer and is added to the previous layers.

The value of this layer is determined by calculating the weighted average between the purchase prices for the stock over the period considered.
If the number of units of stock has decreased from the ending number of units for the previous year, the decrement is deducted from the layers added in previous years, beginning with the most recent year.

Processing LIFO calculations in annual mode can significantly affect performance since every execution selects all transactions belonging to the processed year. Depending on the number of transactions in the F4111 table and, consequently, the number of transactions in the F39120W table, the batch process that calculates LIFO values requires time to reselect all current year inventory transactions and recalculate the average unit cost.

You must install the systems to use the LIFO stock valuation method.