fbpixel Concept 51: Inventory Valuation Methods | IFT World
101 Concepts for the Level I Exam

Concept 51: Inventory Valuation Methods


The four inventory valuation methods are:

FIFO

  • The cost of the first item purchased is assumed to be the cost of the first item sold.
  • Ending inventory is based on the cost of the most recent purchases.

LIFO

  • The cost of the last item purchased is assumed to be the cost of the first item sold.
  • Ending inventory is based on the cost of the earliest purchases.

Weighted average cost

  • Each item in the inventory is valued using an average cost of all items in the inventory.
  • COGS and inventory values are between their FIFO and LIFO values.

Specific identification

  • Each unit sold is matched with the unit’s actual cost.
  • This method is usually used for items that are unique in nature, for example – jewelry.

All four methods are permitted under U.S. GAAP. However, IFRS does not permit LIFO method.

 


Crash Courses for November CFA Level I, II exams are coming soon!
This is default text for notification bar