LIFO - Under periodic LIFO the costs of the latest...

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The difference between periodic LIFO and perpetual LIFO involves the time at which costs are removed from inventory. Under periodic LIFO, the latest costs are assumed to be removed from inventory at the end of the year . Under, perpetual LIFO the latest costs are assumed to be removed from inventory at the time of each sale . We will illustrate the difference by using the following information. A company’s accounting year is January 1 through December 31 and the company sells only one type of product. In its beginning inventory are 2 units with a cost of $10 each. The company sells 1 unit on March 1. On April 1, the company purchases 5 units at a cost of $11 each. On September 1, the company sells 3 units. In summary, the company had 2 units on January 1, purchased 5 units on April 1, sold 4 units during the year, and has 3 units on hand at December 31.
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Unformatted text preview: Under periodic LIFO, the costs of the latest purchases starting with the end of the year are removed first. Since 4 units were sold during the year, the costs removed from inventory and charged to the cost of goods sold will be the latest cost of 4 units, which is $11 each. This means the cost of its December 31 inventory under periodic LIFO will be $31 (1 unit at $11 plus 2 units at $10). Under perpetual LIFO, the costs of the latest purchases as of the date of each sale are removed first. On March 1, the latest cost at that time for the 1 unit sold was $10. At the time of the sales on September 1, the latest costs of the 3 units sold was $11 each. Under perpetual LIFO its cost of goods sold will be $43 (1 at $10 and 3 at $11), and its inventory will be reported at a cost of $32 (2 units at $11 and 1 unit at $10)....
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