Dollar Value Dollar Method Analysis

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The dollar value LIFO method is another approach used for inventory valuation, it follows the last in first out but take into consideration the impact of inflation. The dollar value LIFO method is derived from the LIFO method and it’s designed to overcome the main problem of LIFO method which is liquidation. The dollar value LIFO method groups all type of goods in the inventory in a pool and the pool is measured by the total dollar amount instead of physical quantity. The balance sheet view differ under the dollar value Lifo method from the other inventory valuation methods. The dollar value LIFO method is used to eliminate the inflation effect in order to get accurate results, if the inflation has no impact the result of the dollar and non-dollar…show more content…
The cost is calculated by first computing the ending inventory at current cost for the year then divide by the current price index to obtain ending inventory base year cost then multiply by the appropriate price index in the year of acquisition to obtain the ending inventory at dollar value LIFO cost. This example illustrate the concept: if the ending inventory for 2009 is 50,000 and 60.000 for 2010 assuming that price index is 1 for 2009 and 1.1 for 2010. To calculate the ending inventory cost at base year for 2009 (50,000/1) and for 2010 (60,000/1.1) then multiply by the appropriate price index in the year of acquisition for 2009 we take the whole amount as it’s the first year to use the method so it will equal to (50,000*1) but when we calculate for 2010 we should know by how much the cost of inventory increased compared to last year it will be (54,545-50,000) then multiply this amount by the price index of 2010 and add to it the (50,000*1) of 2009 it will gives the ending inventory under the dollar value LIFO for year…show more content…
The inventory is considered as quantity of value consisting of annual layers. Each layer is pool of the entire inventory purchased during the year so the ending inventory value depends on the dollar value of those items and not on their counts. By using this method of valuing inventory, companies can include a wide range of goods in the pool. Unlike the LIFO method in which the inventory is measured by the quantity of physical

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