Can someone explain this? Was this explained by sir in the platinum classes?
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Look LIFO RESERVE is the difference between FIFO inventory & LIFO inventory. what happens in LIFO you sell the goods at current cost(20/unit) & you will left with the goods with old cost in your inventory (12/unit). FIFO is exact opposite. Now when unit costs are rising the inventory value of FIFO is also rising beacuse it has newly priced goods in it’s inventory say now it’s 25/unit but the lifo has same old low price goods.
Now if you calculate LIFO reserve it will increase beacuse previously It was 20-12= 8, now it’s 25-12 =13. So when cost rises LIFO Reserve also rises.