7
Accounting and Valuation of Inventory
CHAPTER OBJECTIVES
This chapter will help the readers to:
- Understand the meaning of the term ‘inventory’ and identify various components of inventory.
- Visualize the impact of inventory on the profit and loss account and the balance sheet.
- Differentiate between periodic inventory system and perpetual inventory system.
- Compute the cost of goods sold and ending inventory using different methods of inventory, viz., FIFO, LIFO, weighted average and specific identification.
- Appreciate the application of conservatism principles while valuing inventory on ‘lower of cost or net realizable value’.
7.1 MEANING OF INVENTORY
In the ordinary course of business an enterprise buys various types of raw materials, ...
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