book page No. 75

Last in first out (LIFO)

As the name suggests, the LIFO method is based on the assumption that the recently purchased

merchandise is issued first. The LIFO uses actual purchase cost. Thus, if merchandise has been

purchased at several different costs, the inventory (stock) will have several different cost prices. The

cost of goods sold for a given sales transaction may involve several different cost prices.

Characteristics

•
This is alternatively used method for determining values of cost of goods sold and closing stock.

• In the LIFO method recent available purchase costs are transferred to cost of goods sold. That

means the cost of goods sold has a higher value and the profitability of the organization becomes lower.
•
As the current stock is valued at oldest prices, the current assets of the company have the oldest

assessed values.
 

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