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Chapter 14

Note: IAS 2 does not permit the use of LIFO but you need to be aware
of it and the impact its application has upon the financial statements.

There are two applications of AVCO, periodic weighted average and continuous
weighted average.

4.1 Periodic weighted average cost

With this inventory valuation method, an average cost per unit is calculated based
upon the cost of opening inventory plus the cost of all purchases made during the
accounting period. This method of inventory valuation is calculated at the end of an
accounting period when the total quantity and cost of purchases for the period is
known.

4.2 Continuous weighted average cost

With this inventory valuation method, an updated average cost per unit is calculated
following each purchase of goods. The cost of any subsequent sales is then
accounted for at that weighted average cost per unit. This procedure is repeated
whenever a further purchase of goods is made during the accounting period.

Note: When using either of the two methods of weighted average cost to determine
inventory valuation, it is possible that small rounding differences may arise. They do
not affect the validity of the approach used and can normally be ignored.

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