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inventory valuation

inventory valuation

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Published by dpkagr2
how to value inventory
how to value inventory

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Published by: dpkagr2 on Mar 27, 2010
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12/07/2012

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Q.1) what is inventory valuation? ANSWER:
An inventory valuation allows a company toprovide a monetary value for items that make uptheir inventory. Inventories are usually the largestcurrent asset of a business, and propermeasurement of them is necessary to assureaccurate financial statements. If inventory is notproperly measured, expenses and revenues cannotbe properly matched and a company could makepoor business decisions.The inventory accounting involves two majoraspects:
The cost of the purchased or manufacturedinventory has to be determined and
Such cost is retained in the inventory accountsof the company until the product is sold
Q.2
) What are the method by which inventory canbe valued?
 ANSWER:
followings are the methods of inventory valuation-A.) COST PRICE METHOD:1.first in first out
 
2.last in first out3.average cost4.inflated price5.specific price6.base stock 7.Highest in first out.B.) MARKET PRICE METHOD:1.Replacement method2.Realizable value.C.) STANDARD PRICE METHOD:1.current standard price2.Basic standard price.
Q.3)
How to value inventory under FIFO method.Bring out a Profarma for FIFO method?
 ANSWER:
Under this method material is first issued fromthe earliest consignment on hand & price at thecost at which that consignment was placed instores.The unit in opening stock of material is treated as,if they are issued first, the unit from the firstpurchase issued next, so on until the units left inthe closing stock of material are valued at thelatest cost of purchase. It follows that unit costs
 
are apportioned to cost of production according totheir chronological order of receipts in the store.The method is most suitable in times of fallingprices because the issue price of materials to jobor works order will be high (material issued fromthe earliest consignment which were purchased athigher rate) while the cost of replacement will behow. But in case of rising price this method is notsuitable because the issue price of material toproduction will be low, while the cost of replacement of material will be high.
PROFARMA OF FIFO METHOD
DATEPARTICULARECIPTSISSUEBALANCEQnty. TotalcostUnitcostQnty.TotalcostUnitcostQnty.TotalcostUnitcostJan.1Balance b/dRequisition slipno.Goods receivednotes
Q.4)
How to value inventory under LIFO and bring outthe profarma of LIFO?
 ANSWER:

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