What happens when inventory in base year dollars decreases?

Question

Quizplus · Accepted Answer

When inventory in base year dollars decreases, LIFO layer is liquidated. This means that the oldest inventory layers are sold off, which were purchased at lower prices, and hence the remaining inventory is valued at higher prices. As a result, the LIFO layer that was created when the cheaper inventory was purchased is now being liquidated, leading to a decrease in the LIFO reserve.

What Happens When Inventory in Base Year Dollars Decreases