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What is the best inventory cost method? 1-LIFO 2-FIFO 3-Average

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تم إضافة السؤال من قبل Hazem Habra ACCA CMA CIA , Financial Controller , Qatar Basketball Fed - QOC
تاريخ النشر: 2014/01/16
Rehan Qureshi
من قبل Rehan Qureshi , Financial Consultant , Self Employeed

Totally depend upo the nature of business and its products

Samar Saad CMA
من قبل Samar Saad CMA , retail shift leader , vodafone

Its depend on inflation rate , company position and tax environment in which company operate

Rashad Moursi
من قبل Rashad Moursi , Finance Director & Business Development, International Business Transformer Owners Repr. - Hotels , Investment and financial

IAS -2-  iinventories  as well as IFRS dose not permit the use of last-in, first out (LIFO) furmula to measure the cost of inventories. as well as dose not permit exchange diffirence.

- The cost of inventories shall be assigned by using the first-in, first out ( FIFO) or weighted average cost furmula, an entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature ore use, different cost furmulas maybe justified.

Inventories - closing balance shall be measured at the lower of cost and net realisable value whichever is less.  

- IAS dose not apply to the contracting contracts as this activity has a special standard as one of specialized activities  ( IAS-11 )

مستخدم محذوف‎
من قبل مستخدم محذوف‎

in ordinary circumstances - no inflation - i prefer weighted average 

khalid Hassanien
من قبل khalid Hassanien , Financial Manger , Alrwania Ltd

 

 

  •   FIFO gives us a better indication of the value of ending inventory (on the balance sheet), but it also increases net income because inventory that might be several years old is used to value the cost of goods sold. Increasing net income sounds good, but remember that it also has the potential to increase the amount of taxes that a company must pay.
  • LIFO isn't a good indicator of ending inventory value because the leftover inventory might be extremely old and, perhaps, obsolete. This results in a valuation much lower than today's prices. LIFO results in lower net income because cost of goods sold is higher.
  • Average cost produces results that fall somewhere between FIFO and LIFO.

Ahmed Hamdy Mohamed Mohamed Mohamed
من قبل Ahmed Hamdy Mohamed Mohamed Mohamed , Assistant Financial Manager , El Shahd Contracting, Export and Import

Nothing best. There is the best for every kind of inventory. Like foods industry, FIFO

مستخدم محذوف‎
من قبل مستخدم محذوف‎

Supporting the answer of Mr Rasha Moursi, would like to clarify - rather than just average method, a moving average method will be most appropriate but in case of products having expiry accumane must be valued on First-Expiry-First out. Though we are taking about standards here but it is significant to keep in mind nature of product and the policy accepted by management, more important is the consistancy in application of method. As an example - a company is using product costing method will be more intersted in differing the cost and the company using vairable might not.

Mohammad Tohamy Hussein Hussein
من قبل Mohammad Tohamy Hussein Hussein , Chief Executive Officer & ERP Architect , Egyptian Software Group

I see that this depends on the subject material and the external econmic parameters affecting them and the amount being dealt with during a period (month for example). For highly traded items (B2C products), average costing method will be more appropriate. for B2B items fifo will be better for no or low infaltion economies. lifo will be better for the rest.

Ilham Mohammed
من قبل Ilham Mohammed , Senior Accountant , gulf center for foodstuff

FIFO Or wieghted Avarage.

Ravi Kiran Shinde
من قبل Ravi Kiran Shinde , Finance Controller , Arab Engineering Bureau

 

    In Inflationary condition FIFO method i  best suited whereas in deflationary situation LIFO would the best method to be adopted. Average method will give average of LIFO and FIFO method.  

mukkur srinivasan varadhan
من قبل mukkur srinivasan varadhan , Chartered Accountant , Chartered Accountant in practice

FIFI is the best under inflationary conditions. Weighted average will average out the wide variations.LIFO is the best to conservative profit.But IFRSdoes not recognise LIFO .Between FIFO and weighted average,FIFO is better.