5 questions foundFirst-In-First-Out assumes the oldest stock is sold first, so closing inventory is valued at the most recent purchase costs.Buy 10@2 then 10@3, sell 12 -> COGS = 10@2 + 2@3; closing 8@3Real-world example Common for perishable goods where oldest stock genuinely sells first.In inflation FIFO gives the lowest cost of sales and highest profit; LIFO gives the highest cost of sales and lowest profit; AVCO (weighted average) sits in between.Rising prices: FIFO -> higher profit; LIFO -> lower profitReal-world example Method choice affects reported profit and tax, so it must be consistent.Work out closing inventory using AVCO.
Intermediate Recalculate a weighted average cost per unit after each purchase and value issues/closing at that average.10@2 + 10@4 = 60 for 20 units -> avg 3/unit; 8 units left = 24Real-world example Bulk commodities are often valued at weighted average cost.Inventory is valued at the lower of what it cost and its net realisable value (expected selling price less costs to sell), so losses are recognised early.Cost 100, NRV 80 -> value at 80; write down 20Real-world example Obsolete or damaged stock is written down to what it can actually fetch.No. IAS 2 prohibits LIFO because it can distort the balance sheet (old, unrealistic costs) and profit; only FIFO and weighted average are allowed.IFRS: FIFO or AVCO only (LIFO still allowed under US GAAP)Real-world example A group reporting under IFRS cannot use LIFO even if a US subsidiary does locally.