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Narendra

Narendra (Querist)

10 April 2009 Sir,

could you please explain to me LIFO & FIFO methods of stock valuation with examples

Om Prakash Singh

Om Prakash Singh (Expert)

10 April 2009 valuation of Stock as per FIFO method:-
Which goods first come will issue first then if purcahse 100 Pcs for rate 225.00 per and issue 50and purcahse again 150 pcs 250 per and issue 100 pcs, then closing stock will be for 100 pcs and value will be 250.00 per pcs total Rs. 250000.00
But in same Case as per Lifo metod for 100 pcs value will be 225.00 total Rs. 22500.00

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)

10 April 2009 First-In, First-Out (FIFO) - This method assumes that the first unit making its way into inventory is the first sold. For example, let's say that a bakery produces 200 loaves of bread on Monday at a cost of $1 each, and 200 more on Tuesday at $1.25 each. FIFO states that if the bakery sold 200 loaves on Wednesday, the COGS is $1 per loaf (recorded on the income statement) because that was the cost of each of the first loaves in inventory. The $1.25 loaves would be allocated to ending inventory (appears on the balance sheet).

Last-In, First-Out (LIFO) - This method assumes that the last unit making its way into inventory is sold first. The older inventory, therefore, is left over at the end of the accounting period. For the 200 loaves sold on Wednesday, the same bakery would assign $1.25 per loaf to COGS while the remaining $1 loaves would be used to calculate the value of inventory at the end of the period.

Average Cost - This method is quite straightforward; it takes the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of COGS and ending inventory. In our bakery example, the average cost for inventory would be $1.125 per unit, calculated as [(200 x $1) + (200 x $1.25)]/400.