Explain with example the mean of last in frist out?

The "last in, first out" (LIFO) principle refers to a method of inventory valuation where the last items added to an inventory are the first ones to be removed. This means that the most recently acquired items are the first to be sold or used.

For example, let's say a company purchases 100 units of a product at different prices over time:

- 50 units at $10 each
- 30 units at $12 each
- 20 units at $15 each

If the company sells 40 units of the product using the LIFO method, the cost of goods sold would be calculated based on the last items purchased. In this case, the cost of goods sold would be:

- 20 units at $15 each
- 20 units at $12 each

Total cost of goods sold = (20 units x $15) + (20 units x $12) = $300 + $240 = $540

Using the LIFO method, the cost of goods sold would be $540, as the most recently acquired items are the first ones to be sold.

Last In, First Out (LIFO) is an inventory valuation method that assumes that the most recently purchased or manufactured items are the first to be sold or used. This means that the cost of goods sold is based on the cost of the most recent purchases.

Example:

A company purchases 10 units of a product at a cost of $10 per unit. The following month, the company purchases another 15 units at a cost of $12 per unit.

Under LIFO, the cost of goods sold for the first 10 units sold would be $10 per unit, and the cost of goods sold for the next 5 units sold would be $12 per unit. This is because the most recent purchases are assumed to be the first to be sold.

Impact on Inventory Valuation:

LIFO can have a significant impact on inventory valuation. In periods of rising prices, LIFO will result in a lower cost of goods sold and a higher ending inventory value compared to other inventory valuation methods such as FIFO (First In, First Out). This is because LIFO assumes that the most recently purchased items, which are typically more expensive, are the first to be sold.

Advantages of LIFO:

- Lower cost of goods sold in periods of rising prices
- Higher ending inventory value
- Potential tax savings in certain jurisdictions

Disadvantages of LIFO:

- May not accurately reflect the physical flow of inventory
- Can lead to overvaluation of inventory in periods of rising prices
- Complex to implement and manage

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