In this article we will discuss about Inventory:- 1. Meaning of Inventory 2. Need for Inventories 3. Objectives for Measurement 4. Methods of Costing 5. Consistency in the Valuation 6. Accounting 7. Consequences of the Choice of Inventory Methods. Contents: Meaning of Inventory Need for Inventories Objectives for Measurement of Inventories Methods of Inventory Costing Consistency in the Valuation of [...]
AS-2 has advocated to value inventories at the lower of historical cost and net realisable value. It comments: "Inventories are held in the expectation of deriving revenue directly or indirectly from their sale or use. In order to determine the results of a business for a given period, it is necessary to carry forward the cost related to inventories until [...]
The following points highlight the generally accepted methods of inventory pricing, each based on a different Assumption of cost flow. 1. Cost Price Methods: (i) First-In, First-Out (FIFO): The FIFO method follows the principle that materials received first are issued first. After the first lot or batch of materials purchased is exhausted, the next lot is taken up for supply. [...]