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

Step # 10
Compute the total cost of the current year’s ending inventory at base year cost.
$140,495.50 divided by 1.0314 = $136,218
Step # 11
Determine if there is an increment for the current year by comparing the total cost of the pool’s
current year ending inventory at base year cost with the prior year.
In this example we will assume that the total cost of preceding year’s ending inventory at base
year cost was $116,774.
$136,218 - 116,774 = $19,444
Since the current year’s inventory at base year cost is greater, there is an increment.
Step # 12
Value the current year’s increment at current-year cost.
$19,444 x 1.0314 = $20,055.
Step # 13
Since there was an increment, step # 13 is not applicable. However, if there is no increment for a
pool (rather, a decrement), reduce the LIFO layers in reverse chronological order until the
decrement is fully absorbed.
Step # 14
Compute the total LIFO value for the pool. In this example we will assume that the LIFO Value
as of December 31, 1991, was $117,327.
Year
Amount
01/01/90 (Base Year) $105,798
12/31/90 9,424
12/31/91 2,105
Total LIFO Value for the Pool (12/31/91) 117,327
12/31/92 20,055
Total LIFO Value for the Pool (12/31/92) $137,382
9-8