Dollar Value Retail LIFO Inventory Method

Dollar Value Retail LIFO Inventory Method The dollar value retail LIFO estimation technique (DVRL) works exactly like the basic retail inventory method with one addition: The change in the purchasing power of the currency is also taken into consideration, just as with the basic Dollar Value LIFO technique. It is very important to keep track of inventory layers and their price index and to remember that if any erosion of inventory occurs (liquidation) (a) no new layer is added and (b) any liquidated layer is gone for good. It will help immensely, if you remember that (a) sales = cost of goods sold at retail prices and (b) that the ending inventory for year 1 = the beginning inventory for year 2. The example below covers four years and includes the estimation of shrinkage. To do this, the ending inventory is determined through a physical count and then compared to the estimated ending inventory (what should be!). The difference is shrinkage! year 1 cost/retail $value retail LIFO cost ending inventory at retail (current) retail ratio ending inventory at retail (base) $573 Beginning inventory at retail, base 100 50.00% 203*110/100 increase at cost (current) 223*50% $223 $112 Beginning inventory $200 $value retail LIFO ending inventory $312 Cost Retail cost/retail $value retail LIFO ratio Beginning inventory $312 $630 49.44% Purchases $3,000 $6,140 48.86% total goods available for sale $3,312 $6,770 48.91% Sales Index for beginning inventory 100 110 -$6,000 ending inventory at retail (current) ratio $770 ending inventory at retail (base) ratio $670 Beginning inventory at retail, base 115 purchases -$573 increase at retail (base) $97 increase at retail (current) 97*115/100 increase at cost (current) 111*48.86% $111 $54 Beginning inventory $312 $value retail LIFO ending inventory $366 Cost Retail cost/retail $value retail LIFO ratio Beginning inventory $366 $770 47.52% Purchases $3,351 $6,140 53.75% total goods available for sale $3,666 $6,910 53.05% Sales ratio ending inventory at retail (base) ratio Beginning inventory at retail, base Index for beginning inventory 100 110 -$6,150 ending inventory at retail (current) increase at retail (base) 110 purchases $203 increase at retail (current) Year 3 beginning inventory -$370 increase at retail (base) Year 2 ratio $630 Index for $760 $633 -$670 -$36 120 purchases 115 increase at retail (current) 36*115/100 increase at cost (current) 42*48.86% -$42 -$20 Beginning inventory $366 $value retail LIFO ending inventory $346 Cost Year 4 Retail $value retail LIFO cost/retail ratio Beginning inventory $346 $760 45.47% Purchases $3,800 $7,670 49.54% total goods available for sale $4,146 $8,430 49.18% Sales Index for beginning inventory 100 110 115 -$7,100 ending inventory at retail (current) ratio $1,330 ending inventory at retail (base) ratio $1,064 Beginning inventory at retail, base 125 purchases -$633 increase at retail (base) $431 increase at retail (current) 431*125/100 increase at cost (current) 538*49.54% $538 $267 Beginning inventory $346 $value retail LIFO ending inventory $612 Example 2: Including shrinkage Cost Year 4 Retail $value retail LIFO Beginning inventory cost/retail ratio $346 $760 45.47% Purchases $3,800 $7,670 49.54% total goods available for sale $4,146 $8,430 49.18% Sales Index for beginning inventory 100 110 -$7,100 ending inventory at retail (current) $1,330 ending inventory at retail (base) $1,064 Beginning inventory at retail, base -$633 increase at retail (base) $431 increase at retail (current) 431*125/100 increase at cost (current) 538*49.54% $538 $267 Beginning inventory $346 $value retail LIFO ending inventory $612 ending inventory per count (retail, current) $1,200 ending inventory at retail (base) $960 Beginning inventory at retail, base -$633 increase at retail (base) $327 increase at retail (current) 327*125/100 increase at cost (current) 408*49.54% $408 $202 Beginning inventory $346 $value retail LIFO ending inventory $548 Shrinkage: $64 Alternative calculation of shrinkage: ending inventory at retail (current) ending inventory per count (retail, current) $1,330 -$1,200 125 purchases 115 Shrinkage at current retail shrinkage at cost $130 130*49.54% $64