Page 254 - DMGT405_FINANCIAL%20MANAGEMENT

Date Explanation Purchases Sales Balance
Total Units Total Total
Units Units Cost Cost Units Cost Cost Units Cost
Financial Management
July Rs Rs Rs Rs Rs
1 Balance 18 10.00 180 18 180
3 Sold 8 units - - - 8 10.00 80 10 100
Notes
11 Bought 10 units 10 10.50 105 - - - 20 205
17 Sold 5 units - - 5 10.00 50 15 155
25 Bought 12 units 12 11.00 132 - - - 27 287
28 Sold 17 units - - - 5 10.00 50 - -
0 10 10.50 105 - -
0 2 11.00 22 10 110
30 Bought 10 units 10 12.00 120 - - - 20 230

!
Caution FIFO cost flow closely approximates the physical flow of many inventory items.
In a perpetual system each inflow and outflow of inventory is recorded at the time of
transfer.

Last In First Out (FIFO)

With perpetual LIFO, when a sale takes place the cost of latest acquisition is transferred from
inventory to cost of goods sold. Perpetual LIFO system is illustrated below:
LIFO Perpetual Inventory Record of B Comapny Ltd.

Date Explanation Purchases Sales Balance
Units Total Units Total Total
Units Cost Cost Units Cost Cost Units Cost
July ( ) ( ) ( ) ( ) ( )
1 Balance 18 10.00 180 18 180
3 Sold 8 units - - - 8 10.00 80 10 100
11 Bought 10 units 10 10.50 105 - - - 20 205
17 Sold 5 units - - 5 10.5 0 52.50 15 152.50
25 Bought 12 units 12 11.00 132 - - - 27 284.60
28 Sold 17 units - - - 12 11.00 132 - -
0 5 10.50 52.50 - -
0 10 100
30 Bought 10 units 10 12.00 120 - - - 20 220

The first sale of 8 units reduces the initial balances to 10 units but subsequent sales all consists of
the units purchased more recently. Therefore the sale of 17 units on July 28 consists of the
12 units obtained in July 25 plus 5 units obtained on July 11, of the original 18, 10 units at a cost
of 10 each still remain in inventory at the end of the period.
Notice the difference in ending inventory under the perpetual and periodic inventory system
when LIFO valuation is used. The cost of ending inventory with the periodic system the cost is
201. With the perpetual inventory the cost is 220 because some of the units on hand are valued
at the most recent purchase cost. Perpetual LIFO and periodic LIFO often produce different
inventory valuation.

248 LOVELY PROFESSIONAL UNIVERSITY