[ReneeNC]

Anyone have a link to a good explanation of this? I don’t get this at all.

CPAExcel seems to leave out a big chunk of info regarding this. The calculation explanation in there, but if I don’t understand the why’s, I won’t understand it. I am a big picture to detail person.

REG - 89
BEC - 82
FAR - 87
AUD - 81
Used CPAexcel, Wiley Online Practice, and NINJA!

[Anonymous]

I have three words for Dollar Value LIFO – Over My Head! I'm going to follow this thread faithfully for help.

[Anonymous]

It took me awhile to finally understand this topic and I've already forgotten how to do it. There are so many steps! I just wanted to post to say that I don't think this is a make or break topic on the exam. Sure, the more you know how to do the more points you'll get. But if you spend an hour trying to learn something that's not likely to appear in more than 1 MCQ, if that, at the expense of reviewing a more critical topic like the cash flow statement than I think your time vs. benefit is not maximized. With that being said, I just did a Google search and found some YouTube videos on DV Lifo so I'd start there 🙂

[Givemesleep]

Not sure why but I get dollar value lifo. Start with the base year in dollars, then as you move forward, recalculate the ending inventory in year 2 back to base using the index. Take the difference between the base and the new layer and multply the layer by the index and add to the base. Viola !

Reg 11/15/2011 - 80
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Far 08/31/2012 - 83 Do you believe in Miracles, YES !!!

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[ReneeNC]

So, if I know the formula, I don't need to understand it?

REG - 89
BEC - 82
FAR - 87
AUD - 81
Used CPAexcel, Wiley Online Practice, and NINJA!

[msgolds]

@Renee, the exam is not going to ask much in the way of conceptual questions regarding Dollar-Value. It will be all calculation. That said, the overall concept behind it really isn't too different from regular LIFO. It is mostly used in companies that have a large variety of different inventories in which it is not practical to track costs for each individual unit. Rather than using physical quantities as the basis of inventory measurement, they simply use index-adjusted dollar values. Aside from that, the application is basically the same.

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FAR - 84 PASSED
AUD - 93 PASSED
REG - 84 PASSED

I DID IT!!!!

Using Becker Self-Study

"If we were put here to carry a great weight, then the very things we hate are here to build those muscles."

[Anonymous]

Skip Dollar Value LIFO. You probably won't get a question on it.

[Anonymous]

DV LIFO is one of those topics that looks tough but when you get it, it clicks and then you can always do it. Also, I don't recommend skipping it…know it at least a little…there is this axiom that if you do not know something (or intentionally skip reviewing it), you will end up getting tested on it.

So here we go:

Let's say I have a group of similar inventory items when I started my business on January 1st, 2008. The inventory in 2008 was purchased for $800,000 on the first day of business (1/1/2008). Over the next few years, I sold and replenished inventory as needed. Let's also assume I use the Bureau of Labor Statistics' published CPI for my DV LIFO valuation.

The CPI at 1/1/2008 becomes by base-level cost index…it's value is 1.00 because we will be measuring inflated/deflated future values against it. So on 1/1/2008, my inventory is carried at $800,000. On 12/31/2008, my ending inventory is valued at $860,000 and the US BLS reports the CPI at 12/31/2008 is 1.04 (this means that on 12/31/2008, an item worth $1 on 1/1/2008 is now priced at $1.04). Follow these steps:

1) Convert the 12/31/2008 ending inventory value to base-level. Divide $860,000 by 1.04 = ($860,000/1.04) = $826,923. This is what my current inventory level would have cost me if I had purchased this amount on 1/1/2008.

2) Separate this amount into two piles (or “layers”): The initial inventory amount of $800,000, and the extra inventory purchased through the year of $26,923 stated in 1/1/2008 dollars. I would write down the layers as you work DV LIFO problems.

3) Now, look at the $26,923…this is the value of the inventory purchased throughout the year in 2008 stated in 1/1/2008 dollars, but the auditors are going to require you to state it in 12/31/2008 dollars for reporting. So, we have to take the $26,923 and multiply it by the CPI at 12/31/2008 (1.04) to get the true inventory value: $26,923 x 1.04 = $28,000 (rounded). So, our DV-LIFO inventory value at the year end that will appear on our financial reporting is $800,000 + $28,000 = $828,000. However, remember to keep track of your layers that are stated in base-year dollars…the $800,000 and the $26,923.

Now let's assume it is 12/31/2009, and my ending inventory level is $870,000. The BLS reports that the CPI on 12/31/2008 is 1.07 relative to base year 1/1/2008. So, something that was $1 on 1/1/2008 now costs $1.07. Let's follow the steps again:

1) Convert the 12/31/2009 ending inventory to base-level. Divide $870,000 by 1.07 = $813,084. Look at what happened! Our base-level inventory value is less in 12/31/2009 than it was on 12/31/2008…which means we sold off some of our older inventory.

2) Separate the converted amounts into the layers: Layer 1 is the $800,000. Layer 2 is the $26,923..but wait…we only have $813,084 to work with…the increase in inflation outpaced our increases in ending inventory value, and we have essentially sold off some of the Layer 2 inventory. So now, our new layer 2 inventory is reduced to $13,084. In DV LIFO, you always “subtract” from the most recently added layers first.

3) Now we have to convert the layer 2 – $13,084 – to the prices for that layer's base year. Since Layer 2 was inventory added by 12/31/2008, we multiply it by the 1.04 CPI figure to arrive at $13,607. Our DV LIFO ending inventory value at 12/31/2009 is $813,607.

Now let's add another layer. It's 12/31/2010, and the ending inventory value is $900,000…the BLS states the CPI is 1.08 – inflation was tempered in 2010. Perform step 1 – $900,000 / 1.08 = $833,333. Perform step 2 – seperate into piles: $800,000, $13,084, and ($833,333 – $813,084) = $20,249. The $20,249 becomes our Layer 3, and it's corresponding CPI is 1.08. Now, multiply the $20,249 by the CPI of 1.08 to arrive at the DV LIFO amount of $21,869 (rounded). Our DV LIFO total inventory value is $835,476 at 12/31/2010.

@Base-year (1/1/2008) CPI DV LIFO

Layer 1 $800,000 1.0 $800,000

Layer 2 $13,084 1.04 $13,607

Layer 3 $20,249 1.08 $21,869

======= ========

$833,333 $835,476

Hope this helps.

[Anonymous]

Thank you @chromatic! Yes, I did just print that out!

[Anonymous]

Sorry my table looks crappy…here it is reposted:

Layer 1:

---

Stated in Base Year Dollars: $800,000

CPI: 1.0

DV LIFO Value: $800,000

Layer 2:

---

Stated in Base Year Dollars: $13,084

CPI: 1.04

DV LIFO Value: $13,607

Layer 3:

---

Stated in Base Year Dollars: $20,249

CPI: 1.08

DV LIFO Value: $21,869

Total Base Year Inventory Value = $800,000 + $13,084 + $20,249 = $833,333

Total DV LIFO Inventory Value = $800,000 + $13,607 + $21,869 = $835,476

[ReneeNC]

That was by far the BEST explanation I have seen. Now it makes sense!

REG - 89
BEC - 82
FAR - 87
AUD - 81
Used CPAexcel, Wiley Online Practice, and NINJA!

[Anonymous]

IMO: Should not be a thing. LIFO is dead. Long live IFRS.

[Mel]

Bump – Because Chromatic gives a darn good explanation.

[teeteenounouche]

Thanks Mel4CPA!! and of course Chromatic! adding to my notes now 🙂

Florida:
AUD: 73, 81! Thank you Lord!
BEC: 73, 77! Thank you Lord! and WTB
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FAR: 72, 78! Thank you God and my Mommy in Heaven!

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[scubacamper]

I am using Wiley CPAExcel and they left a huge piece out – at least for me, anyway.

What they failed to explain to me is where the indexes came from – to me, they seemed completely arbitrary and abstract because they just appeared out of thin air. Well, that does me no good – if I want to do well, I must understand how the whole machine works – not just the second half of the machine!

So I was studying this morning and it just clicked….FINALLY.

The indexes, as Chromatic was indicating, are the coefficients measuring the INCREASE of prices.

Say you've been buying gasoline at $2.00 per gallon but you buy it thousands of gallons at a time, each day, 260 days/year. Do gas prices remain constant? heck no!

To keep track of daily prices & quantities would be a nightmare, and very costly – which is why the DV LIFO method was developed.

To simplify, let's just take the value at 1/1 of the gasoline we had on-hand and the dollar value of gas we had on-hand at 12/31 –

1/1 $2.00/gal

12/31 $5.35/gal

What percentage increase is that? it's a 267.5% increase in value. The index used is derived from this increase and would therefore be 2.675. The price increased by 2.675 times the base year's price. What once cost $2 now costs $5.35.

The problem is, the end-of-year inventory is a cluster you-know-what of both quantity and price. Now that we know the price change, we can then get back to figure out the unit change.

The rest of the problem – refer to Chromatic's explanation – I just wanted to extract the index portion, which was really tripping me up.

It's not just a made-up number pulled out of thin-air – it will likely either be given in the question, or there will be enough information there for you to determine the index.

I'm not the best at explaining things but I hope this helps any of you still struggling, as I was!

B TBD
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F 62, 70, 65

[Anonymous]

Tip: there are 3 moving parts, identify them, then put them together.

[Author]

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