Exam(account) Essay Example | Topics and Well Written Essays - 1250 words

Exam(account) - Essay Example (Abrema, 2009) There are many methods which are preferred by the Accounting Standards for the valuation of the stock, e.g. Specific Identification, FIFO, LIFO, Weighted Average etc. In order to assess the stock valuation model to be adopted by the company, following points would be considered: Specific Identification method is the most favorable and an ideal method to be used. Here, the actual cost of the Inventory can be identified but there are some limitations as it can be used in large and easily traceable good manufacturing industries such as Vehicles and Furniture. (Money Central, 2009) In FIFO (First In First Out) method, it is assumed that the goods that were bought first were also sold first. As a result, during a rising trend in prices FIFO will give a better assessment of the cost of ending Inventory. (CBA, 1998) LIFO (Last In First Out) method assumes that the goods bought in at the end are being sold first. Therefore, the ending inventory will be valued at a lower price during a rising trend in prices and vice versa. (CBA, 1998) but one of the advantages of using LIFO is that it reduces the amount of taxes during rising trend of prices. In Weighted Average, an average of the whole rate is determined and that rate is applied to the Ending Inventory. It is easy to calculate but it doesn’t show the exact effect of Inflation on prices. (CBA,