Stocks are valued at the lower of cost or net realisable value. This is to ensure that there will be no loss at the time of sale as that would have been accounted for. The common methods of valuing stocks are:
FIFO or first in first out - It is assumed under this method that stocks that come in first would be sold first and those that come in last would be sold last.
LIFO or last in last out - The premise on which this method is based is the opposite of FIFO. It is assumed that the goods that arrive last will be sold first. The reasoning is that customers prefer newer materials or products. It is important to ascertain the method of valuation and the accounting principles involved as stock values can easily be manipulated by changing the method of valuation.
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FIFO or first in first out - It is assumed under this method that stocks that come in first would be sold first and those that come in last would be sold last.
LIFO or last in last out - The premise on which this method is based is the opposite of FIFO. It is assumed that the goods that arrive last will be sold first. The reasoning is that customers prefer newer materials or products. It is important to ascertain the method of valuation and the accounting principles involved as stock values can easily be manipulated by changing the method of valuation.
Subscribe for our free stock bazar tips here.
