Key Takeaways
- FIFO and weighted average are the most common methods in India.
- The chosen method should be applied consistently and follow accounting standards.
- Software calculates valuation automatically from purchase and issue data.
- Consult your CA on the method suitable for your business.
Closing stock value directly affects your gross profit. Accounting standards specify acceptable methods.
Common methods
| Method | How it works | Effect when prices rise |
|---|---|---|
| FIFO | Oldest stock issued first | Closing stock at newer (higher) prices |
| Weighted average | Average cost recalculated | Smoothens price changes |
| Standard cost | Predetermined cost with variances | Used in manufacturing |
| Specific identification | Actual cost per item | For unique, high-value items |
Software support
- Automatic costing on every transaction
- Landed cost (freight, duties) allocation
- Valuation reports by location
- Variance reports for standard costing
Note: Indian accounting standards (AS 2 / Ind AS 2) govern inventory valuation; confirm with your CA.
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Frequently Asked Questions
Which inventory valuation method is best?
It depends on the business and accounting standards; FIFO and weighted average are common. Consult your CA.
Is LIFO allowed in India?
LIFO is generally not permitted under Indian accounting standards for inventory valuation.
What is landed cost?
The total cost of bringing inventory to its location, including freight, duties and handling.
Can I change valuation method?
Changes should be justified and disclosed as per accounting standards.
