Oldest layers out first; ending inventory is the newest cost; the same answer under both systems
◈ 8 cardsCost sales and ending inventory by FIFO under a perpetual system with interleaved purchases, then show the periodic computation gives the same figures.
When identical units cost different amounts
Bramble Lane Outfitters Ltd. buys the same trail shoe every few weeks and the supplier's price keeps moving. When a pair sells, which cost goes to Cost of Goods Sold? Nobody tracks which physical pair left the shelf — they are interchangeable — so ASPE s.3031 lets the store choose a cost formula and apply it consistently: first-in, first-out (FIFO) or weighted average. (Items that are not interchangeable — a canoe with a serial number — use specific identification.) LIFO is prohibited under ASPE and under IFRS; a Grade-12 text that taught it was written for another country.
FIFO under a perpetual system — March, trail shoes
| Date | Event |
|---|---|
| 1 Mar | opening 40 pairs @ 52 |
| 8 Mar | buy 60 @ 55 |
| 12 Mar | sell 70 |
| 20 Mar | buy 50 @ 58 |
| 27 Mar | sell 45 |
FIFO assumes the oldest cost leaves first. Keep the inventory as layers, each with its own unit cost, and consume from the top.
12 March, sell 70. The oldest layer is 40 @ 52 — take all of it (2,080) — then 30 of the 8 March layer @ 55 (1,650): cost of goods sold 3,730. Left: 30 @ 55 = 1,650.
20 March, buy 50 @ 58. Now two layers: 30 @ 55 and 50 @ 58 = 4,550.
27 March, sell 45. The 30 @ 55 go first (1,650), then 15 @ 58 (870): cost of goods sold 2,520. Left: 35 @ 58 = 2,030.
Cost of goods sold, March 3,730 + 2,520 = 6,250
Ending inventory, 31 March 35 @ 58 = 2,030Ending inventory under FIFO is always the newest cost — whatever was bought last is what is assumed to remain. That is FIFO's balance-sheet virtue: the inventory figure is close to current replacement cost.
The same month, periodically
A periodic store does not cost each sale. It counts 35 pairs at 31 March and applies FIFO once: 150 pairs were available (40 + 60 + 50 = 8,280 in cost), 115 sold. The 35 remaining are the last 35 bought — 35 @ 58 = 2,030 — and cost of goods sold is 8,280 − 2,030 = 6,250.
The same two numbers. This is not a coincidence, and a case can ask you to say why: under FIFO the units sold are always the oldest ones in stock, and the oldest units are the same units whether you identify them at each sale or once at the end. Timing does not change which layers are consumed. So FIFO perpetual = FIFO periodic, always. The weighted average (L8.6) does not have this property.
If the 70 pairs sold at 95 and the 45 at 98, sales are 6,650 + 4,410 = 11,060 and gross profit is 11,060 − 6,250 = 4,810.
Rising costs
Costs rose through March (52 → 55 → 58). FIFO charged the cheapest costs to the income statement and left the dearest on the balance sheet, so gross profit is the highest of any formula and ending inventory the highest too. When costs fall the effect reverses — a claim that FIFO "always" gives higher income is wrong, and L8.6 makes the comparison.