Question

The Churchill Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 23,200 units consisted of the following, listed in chronological order of acquisition:

13,600 units at a cost of $9.00 per unit = $122,400
9,600 units at a cost of $10.00 per unit = 96,000

During 2021, inventory quantity declined by 13,200 units. All units purchased during 2021 cost $13.00 per unit.

Required:
Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note, assuming the amount determined is material.

Answer 1

Units liquidated= 13200

Before tax LIFO liquidation profit= Units liquidated multiplayed by the difference between their current cost and acquisition cost

= 9600*(13-10) +3600*(13-9)

=(9600*3)+(3600*4) = $ 28800+$ 14400

= $ 43200

When inventory quantity declines during a reporting period , liquidation of LIFO inventory layers carried at different costs that prevailed in prior years results in non current cost it's matched with current selling price. If resulting effect on income is material then it must be disclosed. Here the effect of LIFO layer liquidation is to increase income (ignoring taxes) by $ 43200