Introduction

Material issue is an issue that must be decided in order to resolve a controversy. It

is an issue of legal consequence or other importance. The existence of a material
issue of disputed fact precludes summary judgment. A summary judgment is
proper only if there is no genuine issue of material fact.

An issue not necessary to decide the point of law is referred to as an immaterial

issue.
The company produces steel & power through backward integration from its own
captive coat & iron ore mines. We know that the most important item for
manufacturing is raw material & every manufacturing ltd have the store house for
save & storing the raw material, every company maintained store a ledger in the
store house. Store ledger means:-
A record kept in the costing department which contains information regarding
receipts, issue & balance of each item of material along with their monetary values.
Store-keeping is the very important for the organisation for handling various items
of storing for day-to-day use. The organisation may be small, medium & large but
it must have its separate store department. The organisations which neglect store
department have to suffer from various types of losses, damages, shortages,
pilferage, deterioration, incorrect issue, wrong preparation of documents etc.

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Main Body of the Project
Meaning of perpetual inventory system

The perpetual inventory system is the way of maintaining the recorded of

inventory in such a ways that the stock on hand can be ascertained at any time. It
emphasizes the day to day checking of stocks and maintains the up to date record.
It is a method of recording inventory after every receipt and issue to facilitate
regular checking and obviate the stocktaking. It provides the stock control as we
can easily find out and verify the level and position of stock lying in the store at
any moment by physical counting. Some definitions of perpetual inventory system
are given below.
"it is a method of recording stores balances after every receipt and issue, to
facilitate regular checking and to obviate closing down for stock taking."
Perpetual inventory system helps to ascertain the balance of each and every stock
in terms of physical quantity as well as monetary value held in store at time. For
this, a company may maintain bin card, in which separate receipt and issue of
material and balance of stock are recorded.
Methods of prancing material issued
When materials have been purchase for a specific product, the cost of materials
received is wholly debited to that product. But, in general practice, materials are
purchase for several products. If all purchase were made at the same price, there
would be no problem in costing materials issued and in inventory valuation. But,
purchase made at different times usually carries different prices and the stores
ledger shows not one but several prices for the same kind o materials. Several
methods are in use concerning the pricing of materials issued from the store.
Following are the important methods of pricing material issued under perpetual
inventory system.

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First in First out (Commonly Called FIFO):
Under this method material is first issued from the earliest consignment on hand
and priced at the cost at which that consignment was placed in the stores. In other
words, materials received first are issued first.

The units in the open ling stock of materials are treated as if they are issued first,
the units from the first purchase issued next, and so on until the units left in the
closing stock of materials are valued at the latest cost of purchases. It follows that
unit costs are apportioned to cost of production according to their chronological
order of receipts in the store.

This method is most suitable in times of falling prices because the issue price of
materials to jobs or works orders will be high (materials issued from the earliest
consignments which were purchased at a higher rate) while the cost of replacement
of materials will be low.

But in case of rising prices this method is not suitable because the issue price of
materials to production will be low while the cost of replacement of materials will
be high. Following example will illustrate how issues of materials are valued under
this method.

pg. 3
Advantages of FIFO Method:
1. The main advantage of FIFO method is that it is simple to understand and easy
to operate.

2. It is a logical method because it takes into consideration the normal procedure of

utilising first those materials which are received first. Materials are issued in order
of purchases, so materials received first are utilised first.

3. This method is useful when prices are falling.

4. Closing stock of materials will be valued at the market price as the closing stock
under this method would consist of recent purchase of materials.

5. This method is also useful when transactions are not too many and prices of
materials are fairly steady.

Disadvantages of FIFO Method:

1. This method increases the possibility of clerical errors, if consignments are
received frequently at fluctuating prices as every time an issue of materials is
made, the store ledger clerk will have to go through his record to ascertain the
price to be charged.

2. In case of fluctuations in prices of materials, comparison between one job and

the other job becomes difficult because one job started a few minutes later than
another of the same nature may be issued materials at different prices, merely
because the earlier job exhausted the supply of the lower priced materials in stock.

3. For pricing one requisition more than one price has often to be taken.

4. When prices rise, the issue price does not reflect the market price as materials
are issued from the earliest consignments.

pg. 4
The “Received” side of the stores ledger account shows the following
particulars:

Jan. 1 Opening Balance: 500

Jan 5 Received from vendor: 200

Jan. 12 Received from vendor: 150

Jan. 20 Received from vendor: 300

Jan. 25 Received from vendor: 400

Issues of material were as follows:

Jan. 4—200 units; Jan. 10—400 units; Jan. 15—100 units; Jan. 19—100 units; Jan.
26—200 units; Jan. 30—250 units.

Issues are to be priced on the principle of ‘First in First Out’. Write out the Stores
Ledger Account in respect of the materials for the month of January.

pg. 5
 Stores Ledger Account (On FIFO Method)

Receipts Issue Balance

Date Particulars
Quantity Cost Total Quantity Cost Total Quantity Cost Total

Jan.1 Balance c/d ----- ----- ----- ---- ----- ---- 500 4.00 2,000

Jan.4 Requisition Slip no. ----- ----- ----- 200 4.00 800 300 4.00 1,200

Jan.5 Goods Received note no 200 4.25 850 ----- ---- ---- 300 4.00 1,200
200 4.25 850
Jan.10 Requisition Slip no..... ------ ----- ------ 300 4.00 1,20
100 4.25 0 100 4.25 425
42
5
Jan.12 Goods Received note no 150 4.10 615 ------- ----- ----- 100 4.25 425
150 4.10 615
Jan.15 Requisition slip no. ------ ---- ------ 100 4.25 425 150 4.10 615

Jan.19 Requisition slip no... ------- ----- ------ 100 4.10 410 50 4.10 205

Jan.20 Goods Received note no 300 4.50 1,350 ----- ---- ---- 50 4.10 200
300 4.50 1,350
Jan.25 Goods Received note no 400 4.00 1,600 ----- ----- ---- 50 4.10 205
300 4.50 1,350
400 4.00 1,600
Jan.26 Requisition slip no. ------ ----- ----- 50 4.10 205 150 4.50 675
150 4.50 675 400 4.00 1,600
Jan.30 Requisition slip no. ------ ---- ---- 150 4.50 675 300 4.00 1,200
100 4.00 400

pg. 6
2. Last In First Out (Commonly Called LIFO) Method:
As against the First in First Out method the issues under this method are priced in
the reverse order of purchase i.e., the price of the latest available consignment is
taken. This method is sometimes known as the replacement cost method because
materials are issued at the current cost to jobs or work orders except when
purchases were made long ago.

This method is suitable in times of rising prices because material will be issued
from the latest consignment at a price which is closely related to the current price
levels. Valuing material issues at the price of the latest available consignment will
help the management in fixing the competitive selling prices of the products. This
method was first introduced in the U.S.A. during the Second World War to get the
advantages of rising prices.

Advantages of LIFO Method:

1. Like FIFO method, this is simple to operate and is useful when transactions are
not too many and the prices are fairly steady.

2. Like FIFO, this method recovers cost from production because actual cost of
material is charged to production.

3. Production is charged at the recent prices because materials are issued from the
latest consignment. Thus, effect of current market prices of materials is reflected in
the cost of sales provided the materials are recently purchased.

4. In times of rising prices, LIFO method of pricing issues is suitable because

materials are issued at the current market prices which are high. This method thus
helps in showing a lower profit because of increased charge to production during
periods of rising prices and lower profit reduces burden of income-tax.

pg. 7
Disadvantages of LIFO Method:
1. Like FIFO, this method may lead to clerical errors as every time an issue is
made, the store ledger clerk will have to go through the record to ascertain the
price to be charged.

2. Like FIFO, comparison between one job and the other job will become difficult
because one job started a few minutes after another of the same type many bear a
different charge for materials consumed, merely because the earlier job exhausted
the supply of the lower priced or higher priced materials in stock.

3. For pricing a single requisition, more than one price has often to be adopted.

4. The stock in hand is valued at price which does not reflect current market price.
Consequently, closing stock will be understated or overstated in the Balance Sheet.

pg. 8
The “Received” side of the stores ledger account shows the following
particulars:

Jan. 1 Opening Balance: 500

Jan 5 Received from vendor: 200

Jan. 12 Received from vendor: 150

Jan. 20 Received from vendor: 300

Jan. 25 Received from vendor: 400

Issues of material were as follows:

Jan. 4—200 units;

Jan. 10—400 units;

Jan. 15—100 units;

Jan. 19—100 units;

Jan. 26—200 units;

Jan. 30—250 units.

Issues are to be priced on the principle of ‘First in First Out’. Write out the Stores
Ledger Account in respect of the materials for the month of January.

pg. 9
 Stores Ledger Account (On LIFO Method)

Receipts Issue Balance

Date Particulars
Quantity Cost Total Quantity Cost Total Quantity Cost Total

Jan.1 Balance c/d ----- ----- ----- ---- ----- ---- 500 4.00 2,000

Jan.4 Requisition Slip no. ----- ----- ----- 200 4.00 800 300 4.00 1,200

Jan.5 Goods Received note no 200 4.25 850 ----- ---- ---- 300 4.00 1,200
200 4.50 850
Jan.10 Requisition Slip no..... ------ ----- ------ 200 4.25 850
200 4.00 800 100 4.00 400
Jan.12 Goods Received note no 150 4.10 615 ------- ----- ----- 100 4.00 400
150 4.10 615
Jan.15 Requisition slip no. ------ ---- ------ 100 4.10 410 100 4.00 400
50 4.10 205
Jan.19 Requisition slip no... ------- ----- ------ 50 4.10 205
50 4.00 200 50 4.00 200
Jan.20 Goods Received note no 300 4.50 1,350 ----- ---- ---- 50 4.00 200
300 4.50 1,350
Jan.25 Goods Received note no 400 4.00 1,600 ----- ----- ---- 50 4.00 200
300 4.50 1,350
400 4.00 1,600
Jan.26 Requisition slip no. ------ ----- ----- 200 4.00 800 50 4.00 200
300 4.50 1,350
200 4.00 800
Jan.30 Requisition slip no. ------ ---- ---- 200 4.00 800 50 4.00 200
50 4.50 225 250 4.50 1,125

pg. 10
Conclusion

Store ledger account is mainly used by the firms for material control. The
effectives of this system relies on store ledger & bin cards & the quantity balance
of these two under different methods like.

Last-in-First-out

First-in-First-Out

Average stock Method

Base Stock Method ;etc

There are instances when quantity balance of bin card & stores ledger do not
tally, due to various reason like an arithmetical error, posting in wrong
document/sheet, non-posting of a transaction in any of the two etc….

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 References
Books

Element of Cost Accounting by S.P.Jain of 2017 from Unit-II/3.1-3.43 (Kalyani)

Cost Accounting by Ranjan K Bal. of 2008 133-161 (S.Chand & Company Ltd.)

LIFO (Last In, First Out) and FIFO (First In, First Out) are two common methods
used in inventory management and accounting to track the flow of goods. Here's a
brief reference on both:

1. LIFO (Last In, First Out):

 Definition: LIFO is a method of inventory valuation where the last items
added to the inventory are the first to be used or sold.
 Application: LIFO is often used in situations where the cost of goods is
rising. By using LIFO, the most recent and presumably more expensive
inventory items are matched with revenue, which can result in lower
reported profits and taxes.
2. FIFO (First In, First Out):
 Definition: FIFO is a method of inventory valuation where the oldest items
in the inventory are the first to be used or sold.
 Application: FIFO is commonly used in situations where the cost of goods
is stable or falling. It ensures that the cost of goods sold (COGS) is based on
older, lower-cost inventory items, which can result in higher reported profits
and taxes.

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