📖 存货：计价方法（FIFO, LIFO, Weighted Avg）

Financial Statement Analysis

I. Lesson Focus

II. The Problem

A trading company purchased identical goods three times during 2023 at unit prices of $10, $12, and $15 while prices were rising. At year-end, unsold units remain. Which purchase cost should be assigned to Cost of Goods Sold (COGS)? The choice can change reported net income by more than 20%, and will also affect income taxes, inventory balances on the balance sheet, and operating cash flow. CFA exams frequently require candidates to determine which method best reflects current economic reality, which method defers taxes, and the permissibility of each method under IFRS versus US GAAP. This lesson systematically resolves these core analytical issues.

III. Core Concepts of Inventory Valuation

Inventory consists of assets held for sale or production. The process of allocating total cost between “sold” and “unsold” units is called an inventory costing method. The fundamental equation is:

Ending Inventory + Cost of Goods Sold (COGS) = Cost of Goods Available for Sale (Beginning Inventory + Purchases)

The allocation method directly affects both the balance sheet (inventory asset) and the income statement (COGS → gross profit → net income).

CFA Level I focuses on three methods: First-In, First-Out (FIFO), Last-In, First-Out (LIFO), and Weighted Average Cost.

1. First-In, First-Out (FIFO)

• Assumes the oldest goods purchased are sold first.
• In an inflationary (rising price) environment:
• COGS is lower (older, cheaper units).
• Ending inventory is higher (reflects recent higher costs).
• Gross profit and net income are higher.
• Permitted under both IFRS and US GAAP.
• Better reflects the current replacement cost of ending inventory.

2. Last-In, First-Out (LIFO)

• Assumes the most recently purchased goods are sold first.
• In an inflationary environment:
• COGS is higher (recent, expensive units).
• Ending inventory is lower (contains older, cheaper layers).
• Gross profit and net income are lower, deferring income taxes.
• Permitted only under US GAAP; explicitly prohibited under IFRS.
• Provides better matching of current sales revenue with current replacement cost.

3. Weighted Average Cost

• Divides total cost of goods available for sale by total units available to obtain a single average unit cost.
• Produces results between FIFO and LIFO; smooths price volatility.
• Permitted under both IFRS and US GAAP.
• Most appropriate for homogeneous inventory that is difficult to track by specific batch (e.g., oil, grain).

IV. Financial Statement Effects of Each Method

In an inflationary environment (the most common exam scenario):

• Income Statement: FIFO reports the highest net income, LIFO the lowest, and Weighted Average falls in between.
• Balance Sheet: FIFO shows the highest inventory balance, LIFO the lowest.
• Cash Flow Statement: Actual cash flows are affected by taxes. LIFO produces lower taxable income and therefore lower tax payments, resulting in the highest operating cash flow.
• Key Ratios:
• FIFO: lower inventory turnover, higher current ratio, higher gross margin.
• LIFO: higher inventory turnover, lower current ratio, lower gross margin.

The LIFO Reserve is the critical bridge between FIFO and LIFO statements:

$$ \text{LIFO Reserve} = \text{FIFO Inventory} - \text{LIFO Inventory} $$

$$ \text{COGS}{\text{LIFO}} = \text{COGS}{\text{FIFO}} + \text{Change in LIFO Reserve (sign depends on inflation)} $$

V. Conversion Analysis and Disclosure Requirements

When a company uses LIFO, it must disclose the LIFO reserve in the notes. Analysts can adjust LIFO statements to a FIFO basis to improve comparability across firms.

Adjustment formulas: - Adjusted Inventory = Reported Inventory + LIFO Reserve - Adjusted Net Income = Reported Net Income (LIFO) + (Change in LIFO Reserve) × (1 − tax rate)

Worked Cases

Case 1: Basic Calculations in Inflationary Environment

Data: - Beginning inventory: 100 units @ $10 = $1,000 - Purchase 1: 200 units @ $12 = $2,400 - Purchase 2: 300 units @ $15 = $4,500 - Purchase 3: 200 units @ $18 = $3,600 - Total units available: 800 - Units sold: 600, ending inventory: 200 units - Sales revenue: $15,000, tax rate 30%

FIFO: - COGS = (100 × 10) + (200 × 12) + (300 × 15) = 1,000 + 2,400 + 4,500 = $7,900 - Ending inventory = 200 × 18 = $3,600 - Gross profit = 15,000 − 7,900 = $7,100

LIFO: - COGS = (200 × 18) + (300 × 15) + (100 × 12) = 3,600 + 4,500 + 1,200 = $9,300 - Ending inventory = (100 × 12) + (100 × 10) = 1,200 + 1,000 = $2,200 - Gross profit = 15,000 − 9,300 = $5,700

Weighted Average: - Average unit cost = 11,500 / 800 = $14.375 - COGS = 600 × 14.375 = $8,625 - Ending inventory = 200 × 14.375 = $2,875 - Gross profit = 15,000 − 8,625 = $6,375

Conclusion: FIFO reports the highest gross profit; LIFO reports the lowest.

Case 2: LIFO Reserve and Analytical Adjustments

Using Case 1 results, assume the company reports under LIFO. Beginning LIFO reserve = $300; ending LIFO reserve = $1,400 (=$3,600 FIFO inventory − $2,200 LIFO inventory).

Change in LIFO reserve = 1,400 − 300 = $1,100. Tax rate = 30%.

Adjusted net income (FIFO basis) = LIFO reported net income + 1,100 × (1 − 0.30) = reported NI + $770.

Adjusted inventory = reported inventory + $1,400.

Case 3: Deflationary Environment and LIFO Liquidation

Reverse the price trend so purchase prices fall: $18, $15, $12, $10. Now FIFO produces higher COGS and lower profit, while LIFO produces lower COGS and higher profit. The tax-deferral benefit of LIFO disappears. A large LIFO liquidation (selling old low-cost layers) can cause an artificial profit spike. Analysts must watch for such liquidations when assessing earnings quality.

Traps

Key Formulas

• Cost of Goods Available for Sale = Beginning Inventory + Purchases
• COGS = Cost of Goods Available for Sale − Ending Inventory
• LIFO Reserve = FIFO Inventory − LIFO Inventory
• Adjusted Inventory = Reported (LIFO) Inventory + LIFO Reserve
• Adjusted NI = Reported (LIFO) NI + (Δ LIFO Reserve) × (1 − tax rate)
• Inventory Turnover (adjusted) = COGS (adjusted) / Average Inventory (adjusted)
• In inflation: Gross profit ranking is FIFO > Weighted Average > LIFO

Practice Questions

Q1. During inflationary periods, using LIFO rather than FIFO will most likely result in:
A. Higher net income and higher inventory balances
B. Lower net income and lower inventory balances
C. Higher net income and lower inventory balances
D. Lower net income and higher inventory balances

Q2. Which accounting standard permits the use of LIFO?
A. IFRS only
B. Both US GAAP and IFRS
C. US GAAP only
D. Neither

Q3. A company using LIFO reports inventory of $80,000 and a LIFO reserve of $25,000. Converted to a FIFO basis, inventory should be:
A. $55,000
B. $80,000
C. $105,000
D. Cannot be determined

Q4. The primary advantage of the weighted-average cost method is that it:
A. Maximizes tax deferral
B. Best reflects current replacement cost
C. Smooths the effect of price volatility
D. Produces the highest gross margin in inflation

Q5. LIFO liquidation is most likely to result in:
A. A significant increase in current-period income tax
B. A significant decrease in current COGS
C. A large increase in reported inventory
D. A significant decline in gross margin

Q6. A company reports beginning LIFO reserve of $400 and ending reserve of $650. Tax rate is 25%. If LIFO net income is $10,000, net income on a FIFO basis is closest to:
A. $9,812.5
B. $10,187.5
C. $10,250
D. $9,750

Q7. In a deflationary (declining price) environment, which method will most likely report the highest net income?
A. FIFO
B. LIFO
C. Weighted Average
D. Cannot be determined

Q8. When an analyst converts from LIFO to FIFO, the typical effect on the statement of cash flows is:
A. Lower operating cash flow
B. Higher operating cash flow
C. No effect (only reclassification)
D. Change in investing cash flow

Answers

Takeaways

• In inflation: FIFO shows highest net income and inventory; LIFO shows lowest net income, lowest inventory, and highest operating cash flow.
• LIFO is allowed only under US GAAP and prohibited under IFRS.
• The LIFO reserve is the essential analytical bridge; adjustments must incorporate the tax rate.
• Weighted-average cost produces smoother results lying between FIFO and LIFO.
• LIFO liquidations can artificially inflate profits; always check for them when assessing earnings quality.
• Analysts should adjust all companies to the same costing basis before making cross-firm comparisons.