FIFO valuation implies that the items that are first to be purchased(put on shelf)
are the first to be sold. That is the oldest goods are sold first. This is valid for those firms where inventory is perishable.
When could FIFO be used?
· When inventory
When the prices are going up, then FIFO gives a lower Cost of Goods sold.
case the prices are going down then FIFO should also help in lowering the tax liabilities.
LIFO valuation: LIFO valuation implies that the items to be
put last on the shelf are to be sold first.
What are the implications of LIFO?
In case the prices are going up it should help lower tax liability.
· It could inflate profit margins
Moving average method: This is defined as follows:
purchases-Cost of goods sold=ending inventory.
Most of the softwares help
correctly give the moving average valuation.
How can M&N Business Intelligence help?
Business Intelligence has developed modules for calculation to LIFO/FIFO and moving average calculation. Our logic incorporates
entries without batches also.
We can consolidate the data from multiple data sources to give accurate inventory valuation. We
can also provide changes in the LIFO/FIFO valuation due to changes in vouchers over periods in time.
Our logic incorporates returns, godown transfer, items with batches and without batches and so
The revised Cost of Goods sold entries could
then be used as part of the profit and loss statements.
The case studies using
various Business Intelligence tools are attached herewith.