Download - Inventory Valuation Faa
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JAWAHARLALNEHRU
TECHNOLOGI
CAL
UNIVERSITY
SCHOOL OF MANAGEMENT OFSTUDIES
Sub :financial accounting and analysis
Inventory valuation
K s s veena
12021E0043
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UNIVERSITY
Click to edit Master subtitle style
3/5/13
INVENTORY VALUATION
Introductioninventory(closing stock) is the property of the
firm. Generally, inventory is the largest item of
the current assets held by a trading ormanufacturing business unit.
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Meaning
The term inventory means, ASSETS
held for sale in ordinary course of business
in the process of production for such sale or
in the form of materials or supplies to be consumedin the production process or in the rendering ofservices.
Inventory includes
finished goods(saleable)
work in progress(semi finished)
materials and supplies(raw material),
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Types of inventories
Inventories
Manufacturing concerns
tradingconcerns
Rammaterial
s
Work inprogress
Finishedgoods'
Finishedgoods
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Importance of inventoryvaluation
Determination of income
Determination of current profit
Disclosing true financial position
Financial analysis
Basis of inventory valuationInventories are recognized as permatching concept inventories are valuedat cost or net realized value which everis less as per conservatism concept
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Inventory valuation techniques
Inventory ,not ordinarilyinterchangeable
Inventory, ordinarily interchangeable
Specific identificationmethod
Historical
costmethods
Non-
historicalcost
methodsFLFO LIFO Averag
e price
Basestock
Weighted avg
price
Standard cost Adjusted sellingprice
Latestpurchase
price
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specific identification method
Under this method, each cost incurred to bring inventory to its
present location and condition is identified separately and takencost of that inventory
Historical cost methods
FIFO(first in first out) method
This method assumes that the item received firstare issued first so that the latest item are instock
In this method, an issue is valued at the oldestrate , while the closing stock is valued at thelatest rate
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LIFO(LAST IN FIRST OUT) METHOD
This method is just opposite of FIFO
It assumes that items received last are issued first sothat the earlier items are in stock.
SIMPLE AVERAGE PRICE
In this method all the different prices are addedtogether and then divided by the number of prices .
sum of the prices of different items instock
Simple average price = number of prices
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WEIGHTED AVERAGE PRICE
cost of goods available for sale during the period isaggregated and then divided by number of unitsavailable for sale during the period, to calculateweighted average price per unit.
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NON HISTORICAL COST METHODS
ADJUSTED SELLING PRICE METHOD
This method is also called as retail inventory method
The cost of inventory is determined by reducingappropriate percentage of gross margin from the sales
value of the inventoryValue of inventory= selling price of inventory -gross profit
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