Last In - First Out (LIFO)

Also known as: LiFo principle

The Last In - First Out (LIFO) is a method for the collective valuation of inventories or a permissible valuation simplification process.

Definition / explanation

The English term last in - first out means "last in - first out" and is mostly used in the short form LiFo.

This is a valuation simplification procedure permitted under Section 256 of the German Commercial Code (HGB) or a procedure for the consumption sequence of inventory assets. With the LiFo method, the assets acquired and manufactured last are sold and used first. The ending stocks are valued at the oldest price.

Admissibility of LiFo in commercial law

Last in - first out is permitted under certain conditions under commercial law:

  • Equivalent and similar stocks such as raw materials or mass products are valued together
  • the price development shows increasing tendencies - otherwise a violation of that Lowest value principle

Types of the LiFo procedure in tax law

Two methods can be used for the assessment according to the Lifo method:

Period LiFo method - Changes in inventory are only determined within certain time periods.

Permanent LiFo process - The inflows and outflows are continuously recorded with their quantities and values

Example of the LiFo process

A hardware store buys a jigsaw for EUR 85.00 on February 3rd and a jigsaw for EUR 89.00 on July 12th.

Am 31. Dezember (Balance sheet date) hat der Baumarkt nur noch eine Stichsäge auf Lager und hat während dem Geschäftsjahr eine an Kunden verkauft.

If the hardware store uses the LiFo method for the valuation, this means that the jigsaw bought last was sold first for EUR 89.00 and the jigsaw bought first is still in stock for EUR 85.00.

For this reason, the company's stock of jigsaws is valued at EUR 85.00 on the balance sheet date.


  • In the last in - first out procedure, the last acquired assets are used first
  • the LiFo method is permitted under commercial law in the event of rising prices and for products of the same value and of the same type
  • Tax recognition of the LiFo method if a single valuation is not possible
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