Chapter 5, Problem 18QS

To determine

Inventory Valuation:

The evaluation or estimation of monetary worth of inventory bought in order to ascertain the cost of goods sold is termed as inventory valuation or inventory costing. Inventory valuation helps to ascertain the cost of goods sold and the cost of closing inventory.

There are majorly four methods used for costing of inventory:

• First in, first out method;
• Last in, first out method
• Weighted average costing method
• Specific identification method.

First in, first out method:

In first in first out method, also known as FIFO method, the inventory which was bought first will be the first one to be taken out.

Last in, first out method:

In case of last in, first out, also known as LIFO method, the inventory which was bought in the last will be taken out first.

Weighted average cost method:

In this method the weighted average cost is evaluated after any purchases have been made and transactions are recorded as when purchase or sales take place.

Specific identification method:

Under this method, a continuous track of the inventory needs to be maintained and the inventory cost is evaluated at the time of purchase, on the basis of unique identity which also helps in the valuation of the ending inventory as well as the cost of goods sold. This method is generally used when the company is involved in limited expensive goods which are easily identifiable.

To Identify: The inventory costing method which best to describe the given statements.

1.