Valuation of Inventory or Stock

It is easy to determine the cost of sales (COS) or the cost of goods sold (COGS) as well as
closing stock when there is only one purchase price of an item. However, when purchases are
made at different times and at different prices, the pricing of stock issued and balance in hand
is more complicated. There are a number of methods in use; the more commonly accepted
methods are as follows:

a). First-in, First-out (FIFO);

b). Last-in, First-out (LIFO);
c). Weighted Average Cost (AVCO).

Example

The following information relates to stock item AJR107.

Date Details Units Units cost Sales price

2018 RM RM
Jan 1 Balance b/d 100 15
Feb 5 Purchases 500 20
Mac 3 Sales 350 50
April 10 Purchases 700 19
May 1 Sales 200 55
June 15 Sales 400 60
July 9 Sales 100 55
August 8 Purchases 800 21
September 30 Sales 300 58
October 19 Sales 200 55
November 11 Sales 100 52
December 7 Purchases 500 18

The physical stock on 31 December 2018 shows a balance of 950 units.

a). FIFO method it is assumed that goods are sold in the order they are received. The
closing stocks are those most recently received.

Periodic Stock System

RM RM
Most recent purchase (Dec 7) 500 units @ 18 = 9,000
Next preceding purchases (Aug 8) 450 units @ 21 = 9,450

Closing Stock 950 units 18,450

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