FIFO Method Inventory Valuation: Practical Numerical Examples & AS 2 SOP
FIFO Method Inventory Valuation: Practical Numerical Examples & AS 2 SOP
Step-by-step accounting guide for warehouse managers and accountants on FIFO closing stock calculations, COGS formulas, and Tally Prime stock valuation.
Who is this for: Inventory Valuation SOP
Quick Answer: How Does the FIFO Inventory Valuation Method Work?
The FIFO (First-In First-Out) method assumes that the oldest stock units purchased are sold first. COGS is calculated using historical purchase costs, while closing stock is valued at the most recent purchase prices, adhering to the lower of cost or Net Realizable Value (NRV) under AS 2 / Ind AS 2.
- AS 2 and Ind AS 2 permit FIFO and Weighted Average; LIFO is strictly banned.
- Oldest inventory costs are charged to Cost of Goods Sold (COGS).
- Closing stock reflects current replacement cost during inflation.
- TallyPrime Stock Summary reports FIFO stock valuations with 1-click toggles.
1. Step-by-Step FIFO Numerical Calculation Example
Batch 1 (Jan 1): Purchased 100 units @ ₹20/unit = ₹2,000
Batch 2 (Jan 10): Purchased 100 units @ ₹30/unit = ₹3,000
Sale (Jan 15): Sold 150 units.
COGS = (100 × ₹20) + (50 × ₹30) = ₹3,500
Closing Stock = 50 units @ ₹30 = ₹1,500
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