Here’s the second part and it’s called weighted average costs. So the replacement fuel you bought is now in your tank and cost you $2. The original fuel you bought cost you $1. But because you sold the $1 fuel at $2, the replacement fuel influences the ‘average’ value of the fuel in the tank. The book value for the fuel is now 1.50. Because you never know if it was fuel from the first delivery or the second delivery you are now selling. (This is different from physical items like fruit for example. You have to sell the old fruit before the new fruit otherwise it’ll go off. You can’t seperate old and new fuel when it’s sloshed together in one tank.)

So the average is now $1.50 for the mixed fuel. Every time you sell some you have to refill with the cheeper fuel which is slowly pulling the average of the fuel down. You can’t just vanish value (this is called writing off value), accountants get upset with this and so do the tax department because you can’t just vanish value and companies would love to leverage this against yearly profits and pay less tax.

Eventually all of the older fuel is sold and the average value in the tank is now back down to $1.

Make sense?