Dollar value LIFO is a technique to estimate inventory on the balance sheet based on physical inventory counts. It is not as used today due to scanning technology, but in the old days, it was hard to keep track of which inventory remained unsold and which inventory was sold. Remember that the value of inventory on the balance sheet is based on cost, not market value (actually lower of cost or market). Dollar Value LIFO starts with physical inventory. Count the physical inventory and estimate its value based on current wholesale market values. If there was no inflation, this would approximate cost. However, if there is inflation, we need to made additional calculations to estimate what we originally paid for the inventory at cost. Consider the facts below: [Fact Pattern #1] Minsk Company adopted the dollar-value last-in, first-out (LIFO) method of inventory valuation at December 31, Year 1. Inventory balances and price indices are shown below. Ending Inventory at End-of-Year Price Index at December 31 Prices December 31 Year 1 $240,000 100 Year 2 275,000 110 Year 3 300,000 120 1. What was the rate of inflation in year 2 in percentage terms? (Year 2 index / Year 1 index) - 1 2. What was the rate of inflation in year 3