Inventory Valuation Model - FIFO Method of Valuing Inventory
Originally published: 31/08/2020 09:23
Publication number: ELQ-31126-1
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Inventory Valuation Model - FIFO Method of Valuing Inventory

Allows to know the transactional breakup of Closing Stock after considering sales made for that period.

Companies operating on the principle of first in, first out value inventory on the assumption that the first goods purchased for resale become the first goods sold. In some cases, this may not be true, as some companies stock both new and old items.

Due to the fluctuations of the economy and the risk that the cost of producing goods will rise over time, businesses using FIFO are considered more profitable – at least on paper. For example, a grocery store purchases milk at regular intervals to stock its shelves. As customers purchase milk, the stockers push the oldest product to the front of the fridge and replace newer milk behind those cartons. The cartons of milk with the nearest expiration dates are thus the ones first sold, whereas the cartons with the later expiration dates are sold after the older ones. This process ensures that older products are sold before they perish or become obsolete, thereby avoiding lost profit.

Companies that sell perishable products or units subject to obsolescence, such as food products or designer fashions, commonly follow the FIFO method of inventory valuation.

Model Mechanis:

Model allows to know the breakup of Closing Inventory at transactional level considering Sales made in the period as per FIFO Method. It lets you know what is the Rate used for COST OF GOODS SOLD and what is the rate used for CLOSING INVENTORY

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Further information

To accurately know the transactional model breakup of Closing Inventory after considering the sale made for that period


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