MGT101 - Financial Accounting 2nd GDB Solution 27 jan 2014

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STOCK:

The goods or merchandise kept on the premises of a business or warehouse and available for sale or distribution to customers is called Stock.

Inventory Valuation Methods:

FIFO (First in First Out)
LIFO (Last in First Out)
Average Cost (Weighted or Moving Average Cost)

FIFO (First in First Out):

This method assumes that the first goods acquired are the first goods sold. This results in cost of goods sold being charged with the earliest cost and ending inventory stated in terms of the most recent cost.

LIFO (Last in First Out)

This method assumes that the last goods purchased are the first sold. This approach charges cost of goods sold with the latest acquisition costs and ending inventory is valued at the cost of the first goods purchased. LIFO produces a better measure of net income than FIFO because the most recent (and accurate) inventory prices are charged against current revenues in cost of goods sold.

Average Cost:

These methods assume that inventory valuation should be based on the average cost of all inventories available for sale during the period. A weighted average is used with periodic inventory systems and a moving average is used with perpetual systems.