Analysis of Inventory Valuation Methods for Carrefour

This report examines inventory valuation methods, specifically focusing on their application within Carrefour. It discusses three primary methods: Last-In, First-Out (LIFO), First-In, First-Out (FIFO), and the Weighted Average Method. The report details how each method impacts the cost of goods sold and profitability, considering factors like inflation and the nature of the goods. It highlights the advantages and disadvantages of each method, including their suitability for perishable goods and their recognition under IFRS. The report concludes by recommending the most suitable method for Carrefour's diverse business operations and global presence, emphasizing the importance of selecting a method that accurately reflects the company's financial performance.

Inventory
Introduction
Carrefour is a popular company stationed in Saudi Arabia. The company is engaged in varied business
encompassing foods, electronics, grocery, home appliances, beauty products and others. Further, the
company values its cost of goods sold based on the following formula:
Cost of Good Sold: Opening Inventory+ Purchase- Closing Stock.
Further, the company is worried about the valuation method of inventory. Accordingly, the said report
is written to discuss various stock Valuation Methods.
Analysis
There are generally three methods of stock valuation:
(A) Last in First Out;
(B) First in First Out;
(C) Weighted Average Method
Last in First Out
This is one of the common method of stock valuation where in the last stock entered into the
inventory is issued first and the first stock inserted is issued last. This method results in higher cost of
good sold in case of inflation as the latest purchases are includes in Cost of Goods Sold and reduces
profit. However, the valuation helps in proper matching of cost in case of inflating market
(Principlesofaccounting.com , 2019)
Drawback: Not recognised under IFRS and not good if the prices of goods are falling. The method is
also not suitable for perishable goods like grocery and foods.
First in First Out
This is one of the common method of stock valuation where in the first stock entered into the
inventory is issued first and the last stock inserted is issued last. This method results in lower cost of
good sold in case of inflation as the latest purchases are not included in Cost of Goods Sold and
increases profit. The method is good for perishable stocks and recognised under IFRS. (CFI Education
Inc., 2019)
Weighted Average Method
This methods considers the weighted average price of goods and considers both inflation and is
recognised under IFRS. This method is ideal considering the diverse business of client and presence
in different countries.

References:
CFI Education Inc. (2019). Last-In First-Out (LIFO). Retrieved March 27, 2019, from
corporatefinanceinstitute.com:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/last-in-first-out-
lifo/
Principlesofaccounting.com . (2019). Inventory. Retrieved MArch 27, 2019, from
www.principlesofaccounting.com: https://www.principlesofaccounting.com/chapter-8/