Dollar Value LIFO Step 1 - Value the total Ending Inventory (EI) at current year costs Step 2 - Convert the ending inventory (stated at current year costs) to base-year costs by applying the conversion index. Divide ending inventory at current costs by the conversion index. Step 3 - Compute the change in the Inventory level (physical quantity for the year at base-year costs) by comparing the ending inventory at base year with the prior year's inventory at base costs. Step 4 - If there is an increase in the inventory level at base-year cost, there is a real increase in the physical quantity of the inventory over the year. Convert the increase to current-year costs by applying the current year conversion index. Layer increase at Current Year-Costs = Increase at Base-Year Costs x Current Conversion Index. Ending Inventory Cost at Dollar Value LIFO is the dollar-value LIFO inventory costs at the beginning of the year plus the layer increase at the current costs. If there is a decrease in the inventory at base-year costs, there is a real decrease in the physical quantity of the inventory during the period. This decrease reduces the inventory on the most recent LIFO layer. A Instructions: Using the dollar-value LIFO example in the Concept Review Exercise as a guide, create an Excel worksheet to calculate the ending inventory using dollar-value LIFO for ABC Co and XYZ Co (found in the following tabs). Use formulas (addition, multiplication and division) in your Excel worksheet when calculating ending inventory using dollar-value LIFO. Label all columns. This handout is worth 50 points. A B D E F ABC Company adopted Dollar Value LIFO on January 1, 2014. The base year inventory costs at January 1 is $650,000. The following information should be used to calculate Ending Inventory using Dollar Value LIFO: Date 1/1/2014 12/31/2014 12/31/2015 1 12/31/2016 2 12/31/2017 Ending Inventory at Cost Index current year cost 650,000 1.00 760,000 1.04 810,000 1.08 830,000 1.16 960,000 1.22 3 4 5 5 7 B E 1 6 2 XYZ Company adopted Dollar Value LIFO on January 1, 2015. The base year 3. inventory costs at January 1 is $200,000. The following information should 4 be used to calculate Ending Inventory using Dollar Value LIFO: 5 Date Ending Inventory at Cost Index current year cost 1/1/2015 200,000 1.00 9 12/31/2015 299,000 1.15 10 12/31/2016 300,000 1.20 11 12/31/2017 351,000 1.30 7 8 12 13 14