Jackson Company adopted Dollar Value LIFO on January1,2011 for its one inventory

Question

Jackson Company adopted Dollar Value LIFO on January1,2011 for its one inventory pool. The inventory's value on this date was $500,000. The 2011, 2012 and 2013 ending inventory valued at year-end costs were $556,500, $596,200, and $604,900 respectively. The appropiate cost indexes are 1.05 for 2011, 1.10 for 2012 and 1.15 for 2013. a. Determine the ending inventory value be reported on Jackson's balance sheet at December 31, 2013 using DVL.$

Explanation / Answer

Year Inv at Base Inv.layers Yr of Inve at added Inventory Yr cost layer year cost (Dollar value Lifo) =================================================================================== 12/31/2011 5,30,000 5,00,000 Base Layer 5,00,000 (556500 x 1/1.05) 30,000 2011 31,500 $5,31,500 (30,000 x 1.05) 12/31/2012 5,42,000 5,00,000 Base Layer 5,00,000 5,96,200 x 1/1.10) 30,000 2011 31,500 12,000 2012 13,200 (12000 x 1.10) $5,44,700 12/31/2013 5,26,000 5,00,000 Base Layer 5,00,000 26,000 2011 27,300 (26,000 x 1.05) $5,27,300 ===================================================================================== 12/31/2013 inventory decreased from 12/31/2012 by $16,000 at base year cost ($5,26,000 - $5,42,000 = -$16,000). By applying LIFO, $16,000 decrease is applied to recently added layers first. --> $12,000 layer added in 2012 is reduced first. Additional $4,000 (= $16,000 - $12,000) is subtracted from the $30,000 layer added in 2011. --> Layer added in 2011 is reduced to $26,000 (= $30,000 - $4,000). Hence Dollar value Lifo closing inventory as on 31 dec 2013 = $5,27,300

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