Pooled LIFO

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		Index for
$value retail LIFO				cost	retail	ratio	beginning inventory
ending inventory at retail (current)			ratio		$630		100
ending inventory at retail (base)					$573	50.00%	110	purchases
Beginning inventory at retail, base					-$370
increase at retail (base)					$203
increase at retail (current)		203*110/100			$223
increase at cost (current)		223*50%		$112
Beginning inventory				$200
$value retail LIFO ending inventory				$312

				Cost	Retail	cost/retail		Index for
Year 2	$value retail LIFO					ratio	beginning inventory
Beginning inventory				$312	$630	49.44%	100	110
Purchases				$3,000	$6,140	48.86%
total goods available for sale				$3,312	$6,770	48.91%
Sales					-$6,000
ending inventory at retail (current)			ratio		$770		115	purchases
ending inventory at retail (base)			ratio		$670
Beginning inventory at retail, base					-$573
increase at retail (base)					$97
increase at retail (current)		97*115/100			$111
increase at cost (current)		111*48.86%		$54
Beginning inventory				$312
$value retail LIFO ending inventory				$366

				Cost	Retail	cost/retail		Index for
Year 3	$value retail LIFO					ratio	beginning inventory
Beginning inventory				$366	$770	47.52%	100	110	115
Purchases				$3,351	$6,140	53.75%
total goods available for sale				$3,666	$6,910	53.05%
Sales					-$6,150
ending inventory at retail (current)			ratio		$760		120	purchases
ending inventory at retail (base)			ratio		$633
Beginning inventory at retail, base					-$670
increase at retail (base)					-$36
increase at retail (current)		36*115/100			-$42
increase at cost (current)		42*48.86%		-$20
Beginning inventory				$366
$value retail LIFO ending inventory				$346

				Cost	Retail	cost/retail		Index for
Year 4	$value retail LIFO					ratio	beginning inventory
Beginning inventory				$346	$760	45.47%	100	110	115
Purchases				$3,800	$7,670	49.54%
total goods available for sale				$4,146	$8,430	49.18%
Sales					-$7,100
ending inventory at retail (current)			ratio		$1,330		125	purchases
ending inventory at retail (base)			ratio		$1,064
Beginning inventory at retail, base					-$633
increase at retail (base)					$431
increase at retail (current)		431*125/100			$538
increase at cost (current)		538*49.54%		$267
Beginning inventory				$346
$value retail LIFO ending inventory				$612

Example 2: Including shrinkage
				Cost	Retail	cost/retail		Index for
Year 4	$value retail LIFO					ratio	beginning inventory
Beginning inventory				$346	$760	45.47%	100	110	115
Purchases				$3,800	$7,670	49.54%
total goods available for sale				$4,146	$8,430	49.18%
Sales					-$7,100
ending inventory at retail (current)					$1,330		125	purchases
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			$538
increase at cost (current)		538*49.54%		$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			$408
increase at cost (current)		408*49.54%		$202
Beginning inventory				$346
$value retail LIFO ending inventory				$548
Shrinkage:				$64

Alternative calculation of shrinkage:
ending inventory at retail (current)					$1,330
ending inventory per count (retail, current)					-$1,200
Shrinkage at current retail					$130
shrinkage at cost		130*49.54%		$64

As you can see, DVRL requires somewhat complex calculations and careful record keeping. This is why God invented computers!

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