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Chapter 9 Inventory (stock) valuation

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Chapter 9Inventory (stock) valuation

A good estimate of closing stock is provided by three methods of stock valuation:

- First-In-First-Out (FIFO) Method
- Last-In-First-Out (LIFO) Method
- Average Cost (AVCO) Method

In this method we assume that the first set of inventory received is the first to leave the warehouse. The resulting ending inventory will be valued at current prices.

Stock valuation schedule (FIFO)

January 1, 2006 - June 30, 2006

In this method we assume that the last set of inventory received is the first to leave the warehouse. The resulting ending inventory will be valued at older prices.

Stock valuation schedule (LIFO)

January 1, 2006 - June 30, 2006

In this method, each time goods are purchased we calculate a new average cost of inventory. The average cost is calculated using the equation

Average cost of inventory=

Total value of goods on hand ÷ Quantity of goods on hand

The resulting ending inventory will be valued at the last calculated average.

Stock valuation schedule (AVCO)

January 1, 2006 - June 30, 2006