In the context of dollarvalue LIFO what is a LIFO layer Sele

In the context of dollar-value LIFO, what is a LIFO layer?

Select one:

a. The LIFO value of an increase in the inventory for a given year.

b. The inventory in base year dollars.

c. The LIFO value of the inventory for a given year.

d. The difference between the LIFO inventory and the amount used for internal reporting purposes.

Solution

Answer is A.

The key concept in the dollar-value LIFO system is the conversion price index. To calculate the index, follow these steps:

These calculations yield an index that represents the change in prices since the base year. The calculation should be derived and retained for each year in which a business uses the LIFO method. This documentation will be needed to justify the period-end inventory costing calculation. Once the index is available, follow these additional steps to determine the cost of the LIFO cost layer in each successive period: