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Chapter 5
Valuing inventory
The cost of materials will normally be derived from suppliers’ invoices but the value of
internal issues from stores to the user (production) department need to be calculated.
The methods looked at here are:
FIFO (First in, first out) – assumes that issues will be made based on
the oldest prices leaving the more recent prices in stores. FIFO is
acceptable by HMRC and adheres to IAS2 Inventories.
LIFO (Last in, first out) – assumes that issues will be made based on
the newest prices leaving the oldest prices in stores. LIFO should
only be used within an organisation as it does not adhere to IAS2.
AVCO (weighted average) – assumes that issues will be made based
on the average cost per unit of the items in stores.
The data being used to demonstrate these techniques is:
Date Receipts Issues Balance
Qty Per Value Qty Per Value Qty Value
unit unit
01/08 150 $150
03/08 200 $1.20
09/08 250
13/08 250 $1.30
16/08 200
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