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ANSWER:
An inventory valuation allows a company to
provide a monetary value for items that make up
their inventory. Inventories are usually the largest
current asset of a business, and proper
measurement of them is necessary to assure
accurate financial statements. If inventory is not
properly measured, expenses and revenues cannot
be properly matched and a company could make
poor business decisions.
The inventory accounting involves two major
aspects:
• The cost of the purchased or manufactured
inventory has to be determined and
• Such cost is retained in the inventory accounts
of the company until the product is sold
ANSWER:
Under this method material is first issued from
the earliest consignment on hand & price at the
cost at which that consignment was placed in
stores.
The unit in opening stock of material is treated as,
if they are issued first, the unit from the first
purchase issued next, so on until the units left in
the closing stock of material are valued at the
latest cost of purchase. It follows that unit costs
are apportioned to cost of production according to
their chronological order of receipts in the store.
The method is most suitable in times of falling
prices because the issue price of materials to job
or works order will be high (material issued from
the earliest consignment which were purchased at
higher rate) while the cost of replacement will be
how. But in case of rising price this method is not
suitable because the issue price of material to
production will be low, while the cost of
replacement of material will be high.
Q.5) How to value inventory under HIFO method and bring out
profarma?
ANSWER:
This, method is based on the assumption that
closing stock of material should always remain
at the minimum value of the available
consignment in the store. This method is not
popular as it is always under value the stock
which amounts to mainly used in case of plus
contract or monopoly product as it is helpful
in increasing the price of the contract or
product.