ACC 101: Inventory Valuation Methods and Specific Identification

This assignment delves into the crucial topic of inventory valuation, a key aspect of financial accounting. The solution begins by discussing the Last In, First Out (LIFO) method, recommending it for large businesses, particularly during inflationary periods, due to its ability to reduce tax liabilities by matching current costs with current revenues. It then explains the Lower of Cost or Market (LCM) strategy, used to adjust inventory values when market prices fall below historical costs. The assignment further contrasts LIFO with the First In, First Out (FIFO) method, suggesting FIFO for items with short expiration dates. The provided example illustrates LIFO calculations. Finally, the assignment emphasizes the conditions under which LIFO is most advantageous and concludes with references to relevant academic sources.

Account

Question 1:
Inventory valuation is an accounting practice that organizations seek to obtain an estimate of
unsold inventory when establishing their tax reports. A stock is an asset to a company, and to be
listed on an emergency page it must have a cash-related value. This value can help determine the
stock conversion decision, which will help determine purchase options.
Let’s assume that the business is large or big organization and hence the method
recommended for inventory valuation is LIFO which is Last In First Out. The reason for
choosing this method is; during inflation environment, the cost of production is higher while the
parity of the remaining stock is lower. Through LIFO, the key lies in detailing lower-level
benefits, which allow businesses to pay less tax. It is better able to coordinate expense and
revenue data and allows the full recovery of significant expenses. LIFO is easy to see, simple to
work with.
The lower of cost or market (LCM) strategy states that, although a group’s stock is
measured, it is recorded in the cash register at the time of a historical cost or market estimate.
Actual cost refers to the cost of purchasing the title. A value of a good can change after a short
time. This is especially true, in the event that the cost at which the stock can be sold falls below
the net feasible estimate of the object, thus correcting a deficit for the organization, at which time
the lowest cost or a market strategy that can be used to record the deficit.
Question 2:
When using the LIFO strategy, the more conventional stock is sold first, with the seasonal stock
remaining on the racks. Therefore, as aggregation costs increase, the COGS in the LIFO stock
index expects the cost of the most recently purchased units to be higher and the equivalent of the
termination inventory to be lower. However, comparing FIFO and LIFO, it is a reliable guide
that FIFO will be perfect for those who have a short expiration date on their items and stocks
with a longer life more guaranteed for LIFO.
For example: 100 shirts are delivered for $ 10. Be that as it may, this time the business visionary
delivers another 100 shirts. Be that as it may, the browser costs $ 12 to create due to

inflammation. The shirt manufacturer is just ready to sell 34 shirts. The equation for the LIFO
method would look like this:
COGS = (34 shirts x $12 LIFO cost) = $408
The maker still has 166 shirts in stock, 100 shirts at $10 and 66 shirts at $12.
This would mean:
Remaining Inventory Value = (100 shirts at $10) + (66 shirts at $12) = $1,792
The only situation for using LIFO is when organizations assume that the cost of an inventory will
increase over time, which in turn means that costs will rise. As the LIFO framework is updated,
the cost of recent stocks will increase, compared to stocks purchased earlier. Therefore, the
equivalence of consumable products is estimated based on prior costs, while the most recent
costs are presented at the cost of the products sold. By moving a record of high costs to the cost
of goods sold, organizations can reduce levels of benefits and recognize personal responsibilities.
That way, deducting annual spending is the best known solution to using LIFO when evaluating
conventional resources.
References
Braglia, M., Grassi, A., & Montanari, R. (2004). Multi‐attribute classification method for spare
parts inventory management. Journal of quality in maintenance engineering.
Krajewski, L. J., Ritzman, L. P., & Malhotra, M. K. (2013). Operations management. Pearson,.