Inventory valuation / inventory change
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IGC-DEFINITION (abbreviated)
Inventory valuation / inventory change
Depending on its purpose (fiscal/balance sheet valuation or business analysis), ware-house inventory valuation can be based on various methods. The guiding principle for inventory valuation is: "Cost or market, whichever is lower".
As a rule, stocks are evaluated at the historic purchase price or full cost of goods manufactured. More specifically, the following measurements or valuation procedures may be used:
- Standard prices
- Adjusted average prices
- HIFO (Highest In - First Out)
- LOFO (Lowest In - First Out)
- FIFO (First In - First Out)
- LIFO (Last In - First Out)
Which procedure is applied is a purely internal decision, based on corporate policy. But if, for example, a stocked item has become outmoded or otherwise unsellable, or the sales price of the goods on the market should suddenly sink below the original historic purchase price or cost of goods manufactured, then these goods must be valued at the lower market price. For business analysis purposes, the following valuation methods are recommended: standard price system, evaluation based on budgeted proportional manufacturing costs.
from: IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.)
