LIFO/FIFO/AVCO

System · June 2005

Hi, First message on site and have found it a real help so far. I've read that the general feeling is that we are likely to get a memo style question of LIFI/FIFO/AVCO. I have a general understanding but would like to hear what people consider to be the advantages and dis-advantages of all these stock methods? I have a feeling that they will possibly ask us to compare them? Help would be much appreciated. Good luck everyone in just over a week.

System · June 2005

LIFO/FIFO/AVCO

Generally speaking for financial reporting its recommended not to use LIFO for the pure reason that you would charge out at higher prices or leaving closing stock at the lower prices, which would reflect no resemblance to current prices. FRS18 accounting standards does not specify which is the preferred method FIFO or AVCO. Disadvantages FIFO: 1. In times of increasing prices you would charge stocks to production at the lower price, which may result in unusally high profits reported in period. 2. You may have purchases or receipts that happen on the same day but may result ing charge to production at different prices. Disadvantages LIFO 1. As above, in time of increasing prices, you would charge to production the stock that has just been received and leaving the stock that has cost lower in the closing stock and may have no resemblance in current price. 2. Again if you have two purchases or receipts that happen in the same day its likely that different prices would be charges to the production. AVCO: I havent seen any thing that gives a disadvantage but I would have thought that using an average value of stock the value of closing stock will never be close to the current price its worth. Hope this helps

System · June 2005

LIFO/FIFO/AVCO

Thanks Petrolmonkey. Can you let me know what you consider the advantages of these stock methods? Thanks

System · June 2005

LIFO/FIFO/AVCO

Haven't got a clue on the advantages, apart from the fact they are easy to calculate

LIFO/FIFO/AVCO

Comments

Categories