MGT101 COMPLETE GDB!!

[02] Which method of inventory valuation is NOT recommended by International Accounting Standards (IAS) for presenting the value of inventory in financial statements?

LIFO is not suggested by International Accounting standards (IAS) for presenting the value of inventory in financial statements.

[03] Give valid arguments in favor of method NOT recommended by IAS for presenting the value of inventory in balance sheet

1. The LIFO method treats the newest items of inventory as being sold first, and consequently the items remaining in inventory are recognized as if they were the oldest. This is generally not a reliable representation of actual inventory flows.

2. Because of inflation, where costs and expenses continue to rise, LIFO will have a lower profit margin than that of FIFO. This is because there is little to no inflation gap to allow LIFO businesses to capitalize on their inventory.

3. Because of LIFO’s generally lower reported profits, businesses utilizing this valuation of   inventory can have a harder time finding investors. Individuals and businesses looking to invest their money are usually looking for companies that show substantial profit growth over a period of time. With LIFO, profits will rise with inflation but they will not reflect the kind of healthy business investors are seeking.

4. Due to the complexities of LIFO , accountants can have a difficult time accurately recording costs and expenses. This is especially true of large businesses that have many operations that implement different inventory management techniques.

Q: 1

VALUATION OF STOCK BY  LIFO METHOD
Dated	Receipts	Issue	Value of Stock	Total amount	Remaining no. of units	Net Balance
Opening inventories	10units @ 100 per unit		10 x 100 = 1000	1000 /=		1000 /=
July 12 2016	5 units @ 120 per units		5 x 120 = 600	600 /=		1600 /=
July 15 2016		12 units @ 150 per unit	12 x 150 = 1800	1800 /=	3 units	300  /=

VALUATION OF STOCK BY  FIFO METHOD
Dated	Receipts	Issue	Value of   Stock	Total Amount	Remaining no. of units	Net  Balance
Opening inventories	10units @ 100 per unit		10 x 100 = 1000	1000 /=		1000 /=
July 12 2016	5 units @ 120 per units		5 x 120 = 600	600 /=		1600 /=
July 15 2016		12 units @ 150 per unit	12 x 150 = 1800	1800 /=	3 units	360 /=