An inventory valuation method where the most recently purchased or produced items are assumed to be sold first.
Under LIFO, the cost of goods sold reflects the most recent purchase prices, while ending inventory reflects the oldest costs. During inflation, LIFO results in higher COGS (newer, higher-priced inventory sold first), lower reported profits, and therefore lower taxes — which is why it's popular in the US under GAAP. However, LIFO is NOT permitted under IFRS, Indian Accounting Standards (Ind AS 2), or most countries' standards. LIFO can create LIFO reserves — the difference between inventory reported under LIFO vs FIFO.
A store buys 100 units at ₹50 in January, then 100 units at ₹60 in February. If 120 units are sold: LIFO COGS = (100 × ₹60) + (20 × ₹50) = ₹7,000. Compare with FIFO COGS of ₹6,200 — LIFO shows ₹800 higher cost and lower profit.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
Indian Accounting Standards (Ind AS 2) and IFRS prohibit LIFO because it can distort inventory values on the balance sheet — showing very old costs for remaining inventory. Only FIFO and Weighted Average Cost methods are permitted in India.
US GAAP allows LIFO, and during inflation it produces higher COGS = lower taxable profits = lower taxes. The IRS requires that if LIFO is used for tax, it must also be used for financial reporting (LIFO conformity rule). This tax benefit drives LIFO adoption.
An inventory valuation method where goods purchased or manufactured first are sold or used first, meaning the oldest stock is consumed before newer stock.
The direct costs attributable to the production or purchase of goods sold by a company during a specific period.
A ratio that measures how many times a company's inventory is sold and replaced over a specific period, indicating sales efficiency and inventory management.
The profit a company makes after deducting the cost of goods sold (COGS) from its revenue, before accounting for operating expenses.
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