Highest In - First Out (HIFO)

Also known as: HiFo principle

The Highest in - First out (HIFO) method is a method for valuing inventories according to acquisition or production costs. Following the principle of prudence of the HGB, it assumes that those stocks with the highest purchase value are used first. It is the opposite of the Lowest in - First out (LOFO) to watch.

Definition / explanation

Das Highest In – First Out (HIFO) ist ein Verbrauchsfolgeverfahren, dass zu einer vorsichtigen Bewertung von Lagerbeständen führt, da die nicht verbrauchten Umlaufgüter zu den geringsten acquisition cost bilanziert werden.

According to HIFO, the accounting department assumes that the expensive inventories have already left the company through consumption or sale (consumption consequential fiction). It is used in companies that continuously record additions and withdrawals of consumer goods and fluctuations in procurement prices. This results in a constantly changing inventory, the final inventory of which may be assessed collectively according to HGB guidelines.

The basis of the application of a non-fictitious consumption sequence procedure would be the existence of a merchandise management system. This must be able to log previous purchase quantities and prices as well as all withdrawals.

Application in tax law

On the basis of the principles of proper bookkeeping, the Highest In - First Out (HIFO) is uncritical in contrast to the Lowest in - First out (LOFO), since the precautionary and the Lowest value principle be respected. Nevertheless, according to commercial and tax law aspects, it is not permissible in Germany, like all price-dependent valuation methods (in contrast to the time-dependent ones).


  • Highest in - First out is a simplification procedure for evaluating inventory levels
  • assumes that the highest cost inventory will be consumed before all others
  • follows the principles of proper bookkeeping, but is not permitted under commercial or tax law

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