Abstract The article discusses the traditional approach to dollar-value last in, first out (LIFO) accounting which involves the return of current year's inventory to the base year price-level as the first step in determining the incremental increase of the inventory at base year price. This increase is then converted to current-year price by the use of the current price level index. This approach requires the use of different year price levels. A method that has proved quite successful in the classroom involves a constant forwarding of price-levels by updating the beginning inventory to the end of the year price level. This method eliminates the need for division in the year of the first incremental increase. This incremental increase is added to the beginning inventory before updating to yield the ending dollar-value LIFO inventory. The return to base year price level is avoided, thus only a forward approach is used. This method cannot be used in cases of incremental decreases in inventory. Such a situation would immediately be detected when the beginning inventory's updated cost exceeds the ending inventory.
William Heck (Fri,) studied this question.