Methods of valuation of inventories
First In First Out (FIFO) Method .
Average Cost Method.
Last In Last Out (LIFO) Method .
Base Stock Method
Weighted Average Method.
Specific Identification Method
Standard Cost
Adjusted Selling Price
Latest Purchase Price
Next In First Out (NIFO) Method
Highest In First Out (HIFO) Method
1. FIRST IN FIRST OUT METHOD:
The First In First Out Method is based on the assumptions that the goods which are received first are issued first. This assumption is made for the purpose of the assigning costs and not for the purposes of the physical flow of goods. The physical flow of goods therefore need not necessarily coincide with the pattern of cost flow assumption. The goods sold therefore , consist of the earliest lots and are valued at the price paid for such lots. The ending inventory consists of the latest lots and is valued at the price paid for such lots.
Required: Compute the value of inventory and cost of goods sold as on Jan 5, 2014 by FIFO Method.
Statement Showing the Value of Inventory and Cost of Goods Sold under FIFO Method (using Periodic System)
Solution:
A. Opening Inventory 100
B. Add: Purchase (Rs 600 + Rs1030) 1630
Refer W.N.1
C. Less: Ending Inventory (250*2.06) (515)
Refer W.N.2
D. Cost of Goods Sold (A+B-C) 1215
Working note1
Purchase=400*1.5=600 +500*2.06=1630
Working Note2
Ending Inventory in units=
100+400+500-450-300=250
FIFO Method (using Perpetual System)
A. Opening Inventory 100
B. Add: Purchases (Rs 600 +Rs 1030) 1630
C. Less: Cost of Goods Sold (1215)
(Rs 100+Rs 525+Rs 75+Rs515)
D. Ending Inventory (A+B+C) 515
Stock ledger under FIFO Method
(Using Perpetual System)
|
C
|
Receipts
|
|
Issued
|
|
Balance
|
|
|
Umits
|
Rate
|
Amount
|
Units
|
Rate
|
Amount
|
Units
|
Rate
|
Amount
|
|
.
|
|
|
|
|
|
|
|
|
|
|
01/01/2014
|
|
|
|
|
|
|
100
|
1
|
100
|
|
02/01/2014
|
400
|
1.5
|
600
|
|
|
|
100
|
1
|
100
|
|
|
|
|
|
|
|
400
|
1.5
|
600
|
|
03/01/2014
|
|
|
|
100
|
1
|
100
|
|
|
|
|
|
|
|
350
|
1.5
|
525
|
50
|
1.5
|
75
|
|
04/01/2014
|
500
|
2.06
|
1030
|
|
|
|
50
|
1.5
|
75
|
|
|
|
|
|
|
|
500
|
2.06
|
1030
|
|
05/01/2014
|
|
|
|
50
|
1.5
|
75
|
|
|
|
|
|
|
|
250
|
2.06
|
515
|
250
|
2.06
|
515
|
LAST IN FIRST OUT METHOD (LIFO)
The Last in First Out Method is based on the assumption that the goods which are purchased last are issued first. Thus LIFO assigns the cost of newer inventory to cost of goods sold and cost of older inventory to ending inventory account.
.
Illustration same as above:
Statement Showing the Value of Inventory and Cost of Goods Sold under LIFO Method (using Periodic System)
Solution:
A. Opening Inventory 100
B. Add: Purchase (Rs 600 + Rs1030) 1630
Refer W.N.3
C. Less: Ending Inventory (100+225) (325)
Refer W.N.4
D. Cost of Goods Sold (A+B-C) 1405
Stock ledger under LIFO Method
(Using Perpetual System)
|
Date
|
Receipts
|
|
Issued
|
|
Balance
|
|
|
Units
|
Rate
|
Amount
|
Units
|
Rate
|
Amount
|
Units
|
Rate
|
Amount
|
|
.
|
|
|
|
|
|
|
|
|
|
|
01/01/2014
|
|
|
|
|
|
|
100
|
1
|
100
|
|
02/01/2014
|
400
|
1.5
|
600
|
|
|
|
100
|
1
|
100
|
|
|
|
|
|
|
|
400
|
1.5
|
600
|
|
03/01/2014
|
|
|
|
400
|
1.5
|
600
|
|
|
|
|
|
|
|
50
|
1.0
|
50
|
50
|
1.0
|
50
|
|
04/01/2014
|
500
|
2.06
|
1030
|
|
|
|
50
|
1.0
|
50
|
|
|
|
|
|
|
|
500
|
2.06
|
1030
|
|
05/01/2014
|
|
|
|
300
|
2.06
|
618
|
50
|
1.0
|
50
|
|
|
|
|
|
|
|
250
|
2.06
|
412
|
LAST IN FIRST OUT METHOD (LIFO)
The Last in First Out Method is based on the assumption that the goods which are purchased last are issued first. Thus LIFO assigns the cost of newer inventory to cost of goods sold and cost of older inventory to ending inventory account.
Illustration same as above:
Statement Showing the Value of Inventory and Cost of Goods Sold under LIFO Method (using Periodic System)
Solution:
A. Opening Inventory 100
B. Add: Purchase (Rs 600 + Rs1030) 1630
Refer W.N.3
C. Less: Ending Inventory (100+225) (325)
Refer W.N.4
D. Cost of Goods Sold (A+B-C) 1405
Stock ledger under LIFO Method (Using Perpetual System)