The Genworth Company adopted the dollar-value LIFO method on January 1, 2016 whe

Question

The Genworth Company adopted the dollar-value LIFO method on January 1, 2016 when the inventory value of its one inventory pool was $450,000. The company decided to use an external index, the Consumer Price Index (CPI), to adjust for changes in the cost level. On January 1, 2016, the CPI was 280. On December 31, 2016, inventory valued at year-end cost was $504,000 and the CPI was 294.

Required:

Calculate the inventory value at the end of 2016 using the dollar-value LIFO method.

Explanation / Answer

First we need to calculate the inventory at base year price and then calculate the change in inventory

December 31, 2016 Inventory at base year price = $504000*280/294 = $480000

Change from prior year = $480000-$450000 = $30000

Therefore dollar value inventory as on end of 2016 is -

$450000 + ($30000*294/280) = $450000+$31500 = $481500

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