Auto Dealerships - Audit Technique Guide - Uncle Fed's Tax*Board

The 1992 LIFO Index is 1.041. This was determined as follows:
Car Pool 9212
Model Year 1993
Prior Year
Prior Year
As of 1991 As of 1991 As of 1992 As of 1992
End Inv Vehicle Extended Vehicle Extended
Model Quantity Price Price Price Price
Car A 5 $22,000 $110,000 $23,000 $115,000
Car B 6 23,000 138,000 24,000 144,000
Car C 9 26,000 234,000 27,000 243,000
20 $482,000 $502,000
Car Pool Index: $502,000 / $482,000 = 1.041
The 1993 LIFO Index is 1.040. This was determined as follows:
Car Pool 9312
Model Year 1994
Prior Year
Prior Year
As of 1992 As of 1992 As of 1993 As of 1993
End Inv Vehicle Extended Vehicle Extended
Model Quantity Price Price Price Price
Car A 6 $23,000 $138,000 $24,000 $144,000
Car B 7 24,000 168,000 25,000 175,000
Car C 10 27,000 270,000 28,000 280,000
23 $576,000 $599,000
Car Pool Index: $599,000 / $576,000 = 1.040
It is possible for the price of a vehicle to go down from one year to the next. Such deflation will
be accounted for in the index using the same steps which were used to compute inflation.
Where no invoice exists or price cannot be reconstructed for a particular vehicle, for a specific
year, the assumption may be made this is a new vehicle entering the inventory and no inflation can
be assigned. Any such particular vehicle will receive an index of 1.0000. The dealer may submit
information to the contrary which should be considered by the agent. See the section on
"Pooling" above, for guidance on determining whether a new item is present.
Once the indices have been calculated the next step of the LIFO computation will be to determine
the LIFO layers to add to the reserve.
Please see the Appendix section of this Guide for a comprehensive case study detailing the
computation of indices used to compute a LIFO Reserve.
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