Accounting: Material and Stores: Last in, Last Out (LILO) , Advantages and Disadvantages (For CBSE, ICSE, IAS, NET, NRA 2022)

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In this method we use newly purchased material for production. Older purchased material will be stored in store. The cost of last lot of materials received is used to price the materials issued until the stock of that lot is exhausted. The stock is valued at the older price of material purchase.

Advantages

  • It considers market prices at the time of issue of materials to job or production.
  • The estimation of cost of product is as per market prevailing prices.
  • It provides a better matching of current cost with current revenues.
  • No loss or no profit on account of this method.
  • This method helps in reducing the tax burden during the period of price rise.

Disadvantages

  • Using this method profit of firm can be manipulated.
  • The stock in hand is purchased earlier so it may become out of date but priced at current value.
  • So, financial position of the firm is wrongly stated.

Example:

A firm maintains its stores ledger on LIFO method basis. Following is the

Summary of the receipts and issues of raw materials during the month of June 2006:

  • 01 Opening balances 200 units @ ₹ 18 per unit
  • 03 Purchase order No. 09,300 units@20 per unit.
  • 07 Issued vide Material requisition No. 14,250 units.
  • 11 Purchase order No. 15,400 units@22 per unit
  • 16 Issued vide Material requisition No. 16,550 units.
  • 19 Purchase order No. 21,600 units@20 per unit.
  • 22 Issued vide Material requisition No. 18,300 units
  • 24 Issued vide Purchase order No. 24,300 units@25
  • 26 Material requisition No. 26,500 units.
  • 28 Purchase order No. 27,200 units@27 per unit.
  • 29 Issued vide Material requisition No. 32,300 units.
  • 30 Purchase order No. 30,150 Units@30 per unit

Solution:

Stores Ledger Sheet [LIFO]

Table Supporting: Accounting: Material and Stores: Last in, Last Out (LILO) , Advantages and Disadvantages
DateParticularsReceiptsIssuesBalance
QtyRateAmountQtyRateAmountQtyAmount
2006

June 1

03

07

11

16

19

22

24

26

28

29

30

Balance

P. O No. 09

M. R. No. 14

P. O No. 09

M. R No. 16

P. O No. 21

M. R. No. 18

P. O No. 24

M. R No. 26

P. O No. 27

M. R. No. 32

P. O No. 30

Total

200

300

--

400

--

600

--

300

--

200

--

150

1700

18

20

--

22

--

20

--

25

--

27

--

30

3600

6000

--

8800

--

12000

--

7500

--

5400

--

4500

38000

--

--

250

--

400

50

100

--

300

--

300

200

--

200

100

--

1900

--

--

20

--

22

20

18

--

20

--

25

20

--

27

20

--

--

--

5000

--

8800

1000

1800

--

6000

--

7500

4000

--

5400

2000

--

41500

200

500

250

650

100

700

400

700

200

400

100

250

250

3600

9600

4600

13400

1800

13800

7800

15300

3800

9200

1800

⚹ 6300

6300

Closing stock consists of

Developed by: