FIFO and LIFO

First in, first out and last in, first out: rules for which units are treated as leaving first, used in accounting to decide which purchase price is charged to cost of goods sold when prices change.

A trader buys 100 units at ₹10 and then 100 at ₹12, and sells 100. Under FIFO the cost of goods sold is ₹1,000 at the older price, and closing inventory is ₹1,200. Under LIFO the cost of goods sold is ₹1,200 and closing inventory is ₹1,000. In a year of rising prices FIFO reports ₹200 more profit and the higher stock value.

Ind AS and IFRS allow FIFO or weighted average cost and forbid LIFO. US GAAP still allows LIFO, and a US company using it discloses a LIFO reserve, the gap between its LIFO and FIFO inventory. Add that reserve back before comparing a US company's inventory and margins with an Indian peer's.

Know which rule each peer uses.