LIFO Inventory Calculator
Under LIFO, compute COGS and ending inventory: sold units take the most recent batch cost first; remaining use earlier batches.
Input Data
Results
At a glance:LIFO (Last-In, First-Out) assumes the most recently purchased units are sold first. Sold units take the latest batch cost first, then earlier batches; ending inventory is valued at earlier-batch cost. In rising prices LIFO makes COGS higher and book profit lower. Hong Kong and IFRS forbid LIFO; it is mainly used in the US (US GAAP).
Formula
LIFO: sold units take the most recent batch cost first, then earlier batches as needed.
COGS = Σ(sold qty × batch cost); ending inventory = total value − COGS.
$$\text{COGS} = \sum (\text{Sold Qty} \times \text{Batch Cost})$$$$\text{Ending Inventory} = \text{Total Value} - \text{COGS}$$How to Use
- Enter beginning units and unit cost.
- Enter purchased units and unit cost.
- Enter units sold to view LIFO COGS and ending inventory.
LIFO COGS and ending inventory examples
| Sold | From purchased (@12) | From beginning (@10) | COGS | Ending |
|---|---|---|---|---|
| 50 | 50 | 0 | HK$600.00 | HK$1,000.00 |
| 120 | 50 | 70 | HK$1,300.00 | HK$300.00 |
| 150 | 50 | 100 | HK$1,600.00 | HK$0.00 |
Beginning 100 @10, purchased 50 @12 (total HK$1,700). LIFO consumes the latest batch first; ending = total − COGS.
Case Studies
Case 1: LIFO COGS and ending inventory
Beginning 100 @ HK$10; purchased 50 @ HK$12; sold 120. Total value = 100×10 + 50×12 = HK$1,700.
LIFO: sell 50 recent @12 = 600; need 70 more, take beginning @10 = 700. COGS = 600 + 700 = HK$1,300.
Ending = 1,700 − 1,300 = HK$300 (remaining 30 beginning @10). Contrast FIFO: FIFO sells 100 old @10 then 20 new @12 → COGS 1,240, ending 360. In rising prices LIFO COGS is higher, ending lower; FIFO the opposite.
Case 2: Why firms choose LIFO — tax effect and HK restriction
The main motive is tax. In inflation, later purchases cost more; LIFO charges those higher costs to COGS first, raising COGS, lowering taxable profit and current tax — where LIFO is allowed (e.g. US), legally deferring tax and keeping cash. Costs: (1) lower book profit may hurt investor perception; (2) ending inventory at old, cheap costs understates replacement value; (3) if a period sells more than it buys, it dips into old low-cost layers, spiking profit and tax — 'LIFO liquidation'.
Key: Hong Kong's HKFRS and IFRS explicitly forbid LIFO. So HK firms must use FIFO or weighted average. This calculator is a concept/teaching tool with a simplified two-batch model — do not use it for actual accounting where LIFO is disallowed. Pair with the FIFO inventory calculator.
FAQ
What is LIFO and how does it differ from FIFO?
LIFO ('Last-In, First-Out') is an assumption for assigning inventory cost: the most recently purchased units are assumed sold first, leaving earlier batches in ending inventory. FIFO ('First-In, First-Out') assumes the earliest units sell first. Same example: beginning 100@10, buy 50@12, sell 120. LIFO: 50@12 + 70@10 = COGS 1,300, ending 300. FIFO: 100@10 + 20@12 = COGS 1,240, ending 360. In rising prices LIFO gives higher COGS/lower ending; FIFO the reverse. They are accounting assumptions, not necessarily physical flow.
Why would a firm choose LIFO; effect on profit and tax?
Mainly tax in inflation. Later purchases cost more; LIFO charges them to COGS first, raising COGS and lowering taxable profit and current tax — deferring tax and keeping cash (where allowed, e.g. US). Trade-offs: lower book profit hurts perception; ending inventory understated; 'LIFO liquidation' can spike profit/tax. It is a tax-deferral strategy with distorted profit/inventory reporting.
Can LIFO be used in Hong Kong; how to read this calculator?
No — Hong Kong's HKFRS (aligned with IFRS) explicitly forbids LIFO. It allows only FIFO or weighted average. The US (US GAAP) still permits LIFO. So this calculator is a teaching/concept tool (simplified two-batch model) to understand LIFO and its difference from FIFO — not for HK accounting. For HK, use FIFO or weighted average and consult a professional accountant.
If HK cannot use LIFO, what is this for?
It is useful for teaching, understanding, and cross-border contexts. (1) Learn accounting concepts — how cost-flow assumptions affect COGS, profit and tax. (2) US practice — analyse US-company filings or handle US entities (LIFO reserve, etc.). (3) Decision thinking — compare FIFO/weighted-average/LIFO effects on profit and tax. This simplified two-batch model is for learning; real inventory is handled by accounting systems. For HK/IFRS, use FIFO or weighted average. Pair with the FIFO and COGS calculators.
What is LIFO liquidation and why does it distort profit?
'LIFO liquidation' happens when a period's sales exceed purchases, forcing the use of old, low-cost layers in ending inventory for COGS. In long inflation those old layers are very cheap; charging them to COGS makes COGS abnormally low and book profit abnormally high — not from real improvement, a 'fake profit' that also brings extra tax, undoing the deferral benefit. This distortion is one reason IFRS bans LIFO. This calculator's simplified model does not cover multi-year layers/liquidation.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.