Last In First Out Method (LIFO)
This method is based on the assumption that last item of materials/goods purchased are the first to be issued/sold. Thus, according to this method, inventory consists of items purchased at the earliest cost.
Illustration 4,3. Calculate the value of the inventory of January 31 from the following data using (i) periodic inventory system and (ii) perpetual inventory system.
Advantages: The method has the following advantages:
1. It takes into account the current market conditions while valuing materials issued to different jobs or calculating the cost of goods sold.
2. The method is based on cost and, therefore, no unrealised profit or loss is made on account of use of this method.
The method is most suitable for materials which are of a bulky and non-perishable type.