Students having a keen interest in cost accounting have taken the subject of inventory valuation. However, you never wondered that finding Methods of Valuation of Inventories Homework Answers would be so difficult. Not to worry. Here you can get different solutions to your question.
First, understand inventory valuation
Understanding inventory valuation makes it easy to move further into homework questions. First break the words, inventory, and valuation. Inventory refers to stocks or assets of a company. The company usually keeps a hold on these assets because they have a future goal to sell them. It is mainly kept aside for reselling.
The company assigns a certain monetary amount to these assets. Therefore, inventory valuation means calculating this assetsâ€™ monetary value with taking help from different cost accounting techniques. By using methods of valuation, it becomes easy to understand where the company is standing regarding itâ€™s assets. This, also, shows goodsâ€™ resale value and when to utilize it.
Among the accounting systems used in evaluation, there are two very important ones that you need to know.
Perpetual Inventory system
In this type of evaluation, accounts department is entitled to keep a record of the amount of every inventory stock that is on hand, daily. Usually recorded in sub-ledger in a separate account,it evaluates each good in stock. Accounts department updates it every time a material is added to or taken out from the stock.
Periodic Inventory System
Here, the basis of evaluation is sales. Once the process takes place,immediately it is recorded in account books. However, inventory, in this case, is not updated.Â Thus, it requires a company to physically count the inventory of the goods to determine itâ€™s cost at year ending.
Methods of Inventory Valuation
For solving questions, one needs to understand the methods first. Therefore they need help with Methods of Valuation of Inventories Homework Answers. The perpetual system of evaluation further classified into following methods:
It deals with selling of a material or stock that has a larger identifiable unit such as furniture, automobiles, jewellery, etc. Best used when the flow of materials become easy to track down as it is happening on a daily basis. It is a user-friendly method. It is used mostly when low quantity materials are measured.
First-in-first-out is the most commonly used method of evaluation. Here, cost of materials for selling is determined by the cost of material previously bought. Therefore, when there is inflation in the market, this method results in higher income.
The method of last-in-first-out is just opposite to FIFO. Here, the company evaluates the selling cost as the recently produced unit valuation. Therefore when the time of evaluation of inventories arrives, it will result in the highest estimation of the cost of goods while giving a low net income.
The highest-in-first-out method allows use of those goods first which had the biggest value during purchase. The goods having evaluated at a highest rate will be taken out of the stock first. Through this method, account books show the most expensive stock of the company.
Mostly used during year ending, to evaluate the remaining stock of a company,this will be carried forward to the next year.The method derives the average cost through the division of the total cost of good that is available for sale by the total units of material that remains for selling. However, when there is a rapid turn in the evaluation through this method, it will closely relate to other two methods LIFO and FIFO.
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