What is LIFO

In this method of valuation of inventory, we calculate the inventory issue cost by reverse order. It means that we charge old quantities price first for issue of material and then new prices will be charged. It is just opposite of FIFO. It is most suitable in inflation of prices. In other words, LIFO is last-in, first-out, meaning that the most recently purchased items are recorded as issued for production first from store.

If LIFO is used for calculating the cost of goods sold and closing stock, then it will calculated for calculating correct gross and net profit. At that time, we take last (latest) purchase price for sold material first time.