Vallectory Valuation: Cost Method Of Inventory Valuation

SIMILARITIES

COST METHOD OF INVENTORY VALUATION An inventory valuation is the process through which a company acquire the monetary value of items that make up their catalogue. Inventories are a current asset for any business, thus proper measurement is indispensable to assure accurate financial statements. Though there are many methods of inventory valuation the IFRS and the US GAAP both use the FIFO or Weighted Average Cost methods for inventory valuation.

FIFO (First-In-First-Out) is an accounting technique used in managing inventories and finances used with the inventories. FIFO is said to be used when the inventories are sold in the same chronological order in which they were acquired. With FIFO, the cost of inventory reported on the

The total of inventory sold is GH₵ 1,860 and the value of the remaining is GH₵ 3,700. Since (120x10) + (55 x 12) = GH₵ 1,860 for the sold inventories while (95 x 12) + (160 x 16) = GH₵ 3700 for the remaining inventory.

Weighted Average allocates the average period cost of all similar goods in inventory to individual items. At the end of each period, identical inventory items are combined for a total inventory cost. The total inventory cost is divided by the units of inventory available. This calculation provides us the average inventory cost per unit.

VALUATION OF FIXED ASSETS

Fixed assets are assets acquired with the intention of being used for the purpose of producing or providing goods or services and are not held for sale in the normal course of business. It deals with property plant and equipment (PPE) as well as biological resources. Both the IFRS and the US GAAP use the historical cost concept in fixed cost

It indicates how the revenues (money received from the normal business course of a firm) are transformed into the net income. It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs; such as depreciation and amortization of various assets, and taxes.[2] The purpose of the income statement is to show stake holders whether the company gained or lost money during the period under review.

Changes in Equity

The statement explains the changes in a company's retained earnings over the reporting period. They break down changes in the owners' interest in the organization, and the profit or loss is being accumulated from one accounting period to another.

Cash Flow Statements

It is also known as the statements of cash flow. It is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents. One of the main aims of the cash flow statement is to determine the short term viability of the company.

Cash And Cash Equivalents are the most liquid assets found within a company. Cash Equivalents shows the most easily convertible assets of a company. Short term government bonds, treasury bills, and marketable securities are examples of cash