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  • Methods of Inventory Valuation

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    The document discusses three methods for valuing inventory: 1. First In First Out (FIFO) method, which assumes goods received first are issued first. 2. Last In First Out (LIFO) method, which assumes goods received last are issued first. 3. Weighted average cost method, which calculates a weighted average price per unit based on total inventory costs and quantities. Examples are provided to illustrate calculating inventory value, cost of goods sold, and closing stock value for each method.

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    The document discusses three methods for valuing inventory: 1. First In First Out (FIFO) method, which assumes goods received first are issued first. 2. Last In First Out (LIFO) method, which assumes goods received last are issued first. 3. Weighted average cost method, which calculates a weighted average price per unit based on total inventory costs and quantities. Examples are provided to illustrate calculating inventory value, cost of goods sold, and closing stock value for each method.

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    © All Rights Reserved
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    2 views13 pages

    Methods of Inventory Valuation

    Uploaded by

    hajeer98ss
    The document discusses three methods for valuing inventory: 1. First In First Out (FIFO) method, which assumes goods received first are issued first. 2. Last In First Out (LIFO) method, which assumes goods received last are issued first. 3. Weighted average cost method, which calculates a weighted average price per unit based on total inventory costs and quantities. Examples are provided to illustrate calculating inventory value, cost of goods sold, and closing stock value for each method.

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    METHODS OF INVENTORY VALUATION

    LEARNING OBJECTIVES

     METHODS OF INVENTORY VALUATION


    1. FIRST IN FIRST OUT (FIFO) METHOD.
    2. LAST IN FIRST OUT (LIFO) METHOD.
    3. WEIGHTED AVERAGE COST/PRICE METHOD
    METHODS OF INVENTORY VALUATION
    METHODS OF INVENTORY VALUATION
     An inventory valuation allows a company to provide a monetary value for items that make
    up its inventory.
    1. First In First Out (FIFO) Method.
    2. Last In First Out (LIFO) Method.
    3. Weighted Average Cost/price Method.
    FIRST IN FIRST OUT (FIFO)
    FIRST IN FIRST OUT (FIFO)
     Based on the assumption that the goods that are received first are issued first.
     Balance sheet shows ending inventory costed as per approx market price.
     “First-In, First-Out” method is easier to understand and implement. It is practically possible
    to apply
    FIRST IN FIRST OUT (FIFO)
    ABC Ltd. Provides you with the following information :
    - 1.1.2019 Opening Stock 100 units @ Rs 1.
    - 2.1.2019 Purchased 400 units @ Rs 1.50.
    - 3.1.2019 Issued 450 units.
    -4.1.2019 Purchase 500 units @ Rs 2.06.
    -5.1.2019 issued 300 units.

    REQUIRED : Compute the value of inventory under FIFO Method


    Compute the value of COGS?
    Compute the Closing Stock value?
    LAST IN FIRST OUT (LIFO)
    LAST IN FIRST OUT (LIFO)
     Based on assumption that goods that are received last are issued first.
     Balance sheet has an inventory costed at old prices.
     LIFO method is that the older inventory may stay on the books forever so, It is practically
    impossible to apply
    LAST IN FIRST OUT (LIFO)
    ABC Ltd. Provides you with the following information :
    - 1.1.2019 Opening Stock 100 units @ Rs 1.
    - 2.1.2019 Purchased 400 units @ Rs 1.50.
    - 3.1.2019 Issued 450 units.
    -4.1.2019 Purchase 500 units @ Rs 2.06.
    -5.1.2019 issued 300 units.

    REQUIRED : Compute the value of inventory under LIFO Method


    Compute the value of COGS?
    Compute the Closing Stock value?
    WEIGHTED AVERAGE COST/PRICE METHOD
    WEIGHTED AVERAGE COST/PRICE METHOD
     Weighted average price is calculated by dividing the total cost of goods in stock by the total
    quantity of goods in stock
     This weighted price is used for pricing the issues until a new lot is received when a new
    weighted average price would be calculated.

    TOTAL AVAILABLE STOCK VALUE


    WACC =
    TOTAL NO OF AVAILABLE STOCK
    WEIGHTED AVERAGE COST/PRICE METHOD
    ABC Ltd. Provides you with the following information :
    - 1.1.2019 Opening Stock 100 units @ Rs 1.
    - 2.1.2019 Purchased 400 units @ Rs 1.50.
    - 3.1.2019 Issued 450 units.
    -4.1.2019 Purchase 500 units @ Rs 2.06.
    -5.1.2019 issued 300 units.

    REQUIRED : Compute the value of inventory under Weighted average cost Method
    Compute the value of COGS?
    Compute the Closing Stock value?

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