Professional Documents
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FIFO LIFO
Periodic:
Step 1: Calculation of units of Closing Stock
Particulars Units
Opening Stock XXX
Add: Purchases ( XX + XX + XX……) XXX
XXX
Less: Issues ( XX + XX + XX……) XXX
Closing Stock XXX
Step 2: Apply principle of FIFO/ LIFO to determine the value of closing Stock.
Perpetual:
Statement showing Valuation of Inventory
Date Particulars Rate
Rs. 10 Rs. 11 Rs. 12 Rs. 13 Rs. 14
Opening Stock XX
Add: Purchases XX
Less: Issue _______________________________________
Closing stock _______________________________________
Value
10 rohit.agarwal@icai.org
Normal & Crash Courses for ISC, CBSE, BCom, BBA, CA & CS
Rohit Agarwal 9883248954
¾ Concept of Stock & Stores: Stock means all goods owned and held for sale in the ordinary course of
business or raw materials held for conversion into finished goods. Stores mean materials held by a concern
for the purpose of consumption in the business and not for resale.
¾ Methods:
1. First-in-First out Method 3. Simple Average Cost
2. Last-in-First out method 4. Weighted Average Cost
¾ First-in-First out Method : This method is based on the assumption that the first item purchased is the
first item sold, that is all inventories are sold in the order in which they are purchased. Thus the cost of
materials issued represents the cost of earlier purchases and cost of closing stock represent the cost of latest
purchases.
¾ The advantages of FIFO are:
1. Stocks are valued strictly on cost.
2. In the case of falling prices, lower profits are reported, thus IT liability is reduced.
¾ The disadvantages of FIFO are:
1. The costs assigned to inventories may not reflect the current prices.
2. In the case of rising prices, higher profits are reported, thus IT liability is increased.
¾ Last-in-First out method: This method is based on the assumption that the recent item purchased is the
first item sold. Thus the cost of materials issued represents the cost of latest purchases and cost of closing
stock represent the cost of earlier purchases.
¾ The advantages of LIFO are:
1. In the case of rising prices, lower profits are reported, thus IT liability is reduced.
2. Stocks are valued strictly on cost.
¾ The disadvantages of LIFO are:
1. In the case of falling prices, higher profits are reported, thus IT liability is increased.
2. The costs assigned to inventories may not reflect the current prices.
¾ Differences: Take points from above (Assumption, Rising Prices, Falling Prices, Cost of materials issued
and Cost of closing stock.)
¾ Material / Goods Received Note: GRN is prepared by the receiving section of the enterprise. It prepares
the GRN after verifying the goods received are in accordance with the purchase order (i.e. quantity and
rate) and quality report has been received approving the goods.
¾ Stores Requisition Note: When a department requires material from the stores, it prepares a Stores
Requisition Note, which is an order on the store, for the material required. It is signed by the in charge of
the department and is authorization for the issue of specified quantity of material.
¾ Material Return Note: On completion of production work, the materials left unused are returned to
store along with a note called MRN. It is made in triplicate and signed by the store keeper who returns it.
¾ Material Transfer Note: When materials are transferred from one department or job to another within
the organisation, the transfers are made on the basis of MTN. It is made in triplicate and signed by the in
charge of transferee (receiving) department.
12 rohit.agarwal@icai.org
Normal & Crash Courses for ISC, CBSE, BCom, BBA, CA & CS