Inventory valuation

By: Amit Kumar Vishwakarma

InventoryGoods which have been purchased or manufactured and are yet to be consumed and sold are termed as inventories. As per AS-2 inventory/stock is an assets which:(i) Has been kept for sale during course of the general business, or(ii) Is in manufacturing process for sale, or(iii)To be consumed for manufacturing of product or service for the purpose

of sale. 1. Stock of finished goods

2. Stock of work-in-progress3. Stock of raw materials4. Stores & spare parts5. Loose tools6. Waste or by-product

Inventory includes:

America- “Inventory”England- “Stock”

Needs of Inventory Valuation Determination of Income Determination of financial position Determination of policies Business sale Buying a business Collateral for tenders

SYSTEMS OF STOCK TAKING:

1. Periodic System2. Perpetual System

Methods of Inventory Valuation

First in First Out (FIFO)Last in First Out (LIFO)Highest in First Out (HIFO)Next in First Out (NIFO)Average Cost MethodSpecific Identification Cost MethodBase Stock Cost Method

FIFO MethodQue: The following information is available for the month of January 2003, of a trading concern:

Jan 1 Inventory 200 units @ Rs 70 14000Jan 5 Sales 100 unitsJan 10 Purchases 550 units @ Rs 80 44000Jan 15 Sales 400 unitsJan 20 Purchases 150 units @ Rs 90 13500 Jan 25 Sales 300 unitsJan 30 Purchases 100 units @ Rs 100 10000

LIFO MethodFrom the following particulars, calculate the value of inventory on Jan 31, 2003, by Last In-First out Method: Receipts Jan 1 Inventory in hand 2,000 units @ Rs 7 14,000 Jan 10 Purchases 11,000 units @ Rs 8 88,000 Jan 20 Purchases 3,000 units @ Rs 9 27,000 Jan 31 Purchases 4,000 units @ Rs10 40,000

Issues for sale Jan 5 1,000 units Jan 12 2,000 units Jan 15 4,000 units Jan 25 5,000 units

Average Cost MethodDate Receipt Quantity Rate Issue QuantityJan 1 200 10 -Jan 10 300 12 -Jan 15 - - 250 Jan 20 250 13 - Jan 31 - - 200 Stores Ledger

DATE(1996)

Receipts Issues Balance(Inventory)

Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount

Jan 1 200 10 2000 - - - 200 10 2000

Jan 10 300 12 3600 - - - 500 - 5600

Jan 15 - - - 250 11 2750 250 - 2850

Jan 20 250 13 3250 - - - 500 - 6100

Jan 31 - - - 200 12.50 2500 300 - 3600

Weighted Average Cost Method

DATE(1996)

Receipts Issues Balance(Inventory)

Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount

Jan 1 200 10 2000 - - - 200 10 2000

Jan 10 300 12 3600 - - - 500 11.20 5600

Jan 15 - - - 250 11.20 2800 250 11.20 2800

Jan 20 250 13 3250 - - - 500 12.10 6050

Jan 31 - - - 200 12.10 2420 300 12.10 3630