Page 294 - Accounting Principles (A Business Perspective)

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Purchased Sold Balance
Date Units Unit Total Units Unit Total Units Unit Total
Beg. inv. Cost Cost Cost Cost Cost Cost
$8.00 80
Mar. 2 10 $8.50 $85 10 8.00 80
10 8.50 85
Mar. 10 10 $8.50 85 10 8.00 80
May 28 20 8.40 168 10 8.00 80 Sales are assumed
20 8.40 168 to be from most
recent purchases
July 14 20 8.40 168 10 8.00 80
Aug.12 10 9.00 90 10 8.00 80
10 9.00 90
Sept. 7 10 9.00 90 10 8.00 80
Oct. 12 20 8.80 176 10 8.00 80
20 8.80 176
Nov. 22 20 8.80 176 10 8.00 80
Dec. 21 10 9.10 91 10 8.00 80 Total of $171
10 9.10 91 would agree with
balance already
existing in
Merchandise
Inventory account.
Total cost of ending inventory = $171
Exhibit 57: Determining LIFO cost of ending inventory under perpectual inventory procedure
Notice in Exhibit 56 that each time a sale occurs, the company assumes the items sold are the oldest on hand.
Thus, after each transaction, it can readily determine the balance in the Merchandise Inventory account from the
perpetual inventory record. The balance after the December 21 purchase represents the 20 units from the most

recent purchases. The total cost of ending inventory is USD 179, which the company reports as a current asset on
the balance sheet. During the accounting period, as sales occurred the firm would have debited a total of USD 511 to
Cost of Goods Sold. Adding this USD 511 to the ending inventory of USD 179 accounts for the USD 690 cost of
goods available for sale. Under FIFO, using either perpetual or periodic inventory procedures results in the same
total amounts for ending inventory and for cost of goods sold.
LIFO under perpetual inventory procedure Look at Exhibit 57 to see the LIFO method using perpetual
inventory procedure. Under this procedure, the inventory composition and balance are updated with each purchase

and sale. Notice in Exhibit 57 that each time a sale occurs, the items sold are assumed to be the most recent ones
acquired. Despite numerous purchases and sales during the year, the ending inventory still includes the 10 units
from beginning inventory in our example. The remainder of the ending inventory consists of the last purchase
because no sale occurred after the December 21 purchase. The total cost of the 20 units in ending inventory is USD
171; the cost of goods sold is USD 519. Exhibit 58 shows graphically the LIFO flow of costs under perpetual
inventory procedure.
Applying LIFO on a perpetual basis during the accounting period, as shown in Exhibit 57, results in different
ending inventory and cost of goods sold figures than applying LIFO only at year-end using periodic inventory
procedure. (Compare Exhibit 57 and Exhibit 53 to verify that ending inventory and cost of goods sold are different

under the two procedures.) For this reason, if LIFO is applied on a perpetual basis during the period, special
adjustments are sometimes necessary at year-end to take full advantage of using LIFO for tax purposes.

Accounting Principles: A Business Perspective 295 A Global Text