FIFO + LIFO valuation of inventory balance

DannyT90

Can anyone help me understand abit better why when then FIFO Costing method is used that the inventory balance is valued at the most RECENT purchase cost?

Is this because what's left in stock is mostly the most recent purchased items?

Bertie

FIFO - what you buy first, you sell first.

Take bread as an example, a shop would (well should, although some shops like selling stale bread!) sell its first batch before the next in.

If batch #1 costs 90p each loaf, and batch#2 costs £1, the closing inventory will consist mainly of £1 units.

FIFO and AVCO are the choice of IAS 2 for statutory reporting.

DannyT90

Yeah that's what I thought but I wanted a second opinion, thanks for that.

What's IAS 2?

Bertie

International accounting standard 2 -

It stipulates how inventories should be accounted.

From memory you'll start to see accounting standards in level 3.