Section 10 - Inventory Control
What is Stock Valuation?
This is the assignment of a value to stock, usually stock on hand at the end [ closing inventory]
of a financial period.
Why is Stock Valuation necessary?
In order to prepare financial statements a value is required for the closing stock.
*Income Statement requires a figure for closing stock to calculate Cost of Goods Sold and Balance sheet requires a figure for
closing stock to calculate total current assets
How is stock valued?
Three methods available to value stock are :
1. First In, First out (FIFO)
2. Last In, First Out (LIFO)
3. Average Cost (AVCO)
Concept of perpetual and periodic stock valuation
Perpetual inventory system and periodic inventory systems are the two systems of keeping
records of inventory.

In perpetual inventory system, merchandise inventory and cost of goods sold are
updated continuously on each sale and purchase transaction.

In periodic inventory system, merchandise inventory and cost of goods sold are not
updated continuously. Instead this is done at the end of a financial period.
A worked example
The following table show the stock received and issued by Company ABC along with the
relevant dates. 650 units were sold on November 30, 2011. What is the value of the 100 units
on hand at December 31, 2011 using FIFO, LIFO and AVCO?
DATE 2011
DATAILS
UNITS
COST $
TOTAL COST $
Jan 01
Opening Stock
100
20
2000
Apr 15
150
21
3150
Aug 24
200
22
4400
Nov 27
300
23
6900