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

CYC = Current Year Cost. This is the price at December 31, 1992, of the 1993 Models in the
December 31, 1992, ending inventory.
The 1992 LIFO Index is 1.041:
LIFO INDEX = (TOTAL CYC / TOTAL BOYC)
$502,000 / $482,000 = 1.041
The 1992 Cumulative Index is 1.041:
(1992 LIFO INDEX x BASE YEAR INDEX)
1.041 x 1.000 = 1.041
The value of the 9212 Ending Inventory at Base Year Cost is $482,000.
$502,000 / 1.041 = $482,000
(1992 CURRENT YEAR COST / 1992 CUMULATIVE INDEX)
Computation of 1992 Increment and Reserve Addition
Base Cumm.
Year Cost Index Lifo Value
Base Year Inventory $224,000 1.000 $224,000
1992 Increment 258,228 1.041 268,815
$482,228 $492,815
The 1992 Increment at Base Year Cost ($258,228) is derived by subtracting the Base Year
Inventory from the 9212 Ending Inventory at Base Year Cost.
9212 Ending Inventory at Base Year Cost $482,228
- Base Year Inventory
1992 Increment $258,228
The 1992 LIFO Value is derived by multiplying the 1992 Increment by the 1992 Cumulative
Index, then adding this product to the product of the Prior Year LIFO value which in this example
is determined by multiplying the Base Year Cost by the Base Year Index.
Base Year Inventory $224,000 x 1.000 = $224,000
1992 Increment $258,228 x 1.041 = +268,815
1992 LIFO Value $492,815
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