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Totally depend upo the nature of business and its products
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 )
in ordinary circumstances - no inflation - i prefer weighted average
Nothing best. There is the best for every kind of inventory. Like foods industry, FIFO
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.
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.
FIFO Or wieghted Avarage.
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.
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.