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MEANING OF INVENTORY
HELD FOR IN THE ORDINARY COURSE OF BUSINESS IN THE PROCESS OF PRODUCTION FOR SUCH SALE IN THE FORM OF MATERIALS OR SUPPLIES TO BE COSUMED IN THE PRODUCTION PROCESS OR RENDERING OF SERVICES
DETERMINATION OF INCOME
It is done to determine the true income earned by buisness during particular period. Cost of goods is determined by adding openinig inventory to deduducting closing inventory from purchase.
INVENTORY SYSTEM
.Periodic inventory system .Perpetual inventory system
METHODS OF VALUATION
Specific identification method FIFO LIFO HIFO NIFO WAPM
FIFO
Under this method , it is assumed that materials/goods first to issued or sold.
ADVANTAGE
It values stock nearer to current market prices since stock is presumed to be consisting of the most recent purchase
DISADVANTAGE
It invoves complicated calculations and hence inceases the possibility of clerical errors
LIFO
This method is based on assumption that last item of materials /goods purchased are the first to be issued /sold.according this method,inventory of items purchased at the earliest cost.
ADVANTAGE
It takes into the current market conditions while valuing materials issued to different jobs or calculating the cost of goods sold.
HIFO
The inventory of this materials or goods should be at the lowest possibile prices
NIFO
The method attempts to value materials issued or goods sold at an actual prices which is the nearest possible to the market price.
WAPM
This method is based on the presumption that once the materials or goods are put into a common bin,the lose the separate identity