Inventory Valuation Methods

[lara]

Hi everyone, I’m trying to decide between FIFO, LIFO and Weighted Average method for valuing inventory in my business. What are the pros and cons in a volatile price environment? Which method is more commonly accepted by auditors? Thanks in advance for your insights.

 

[denjoshep]

In volatile price environments, FIFO gives higher profits but higher taxes, LIFO lowers taxes but isn’t IFRS-compliant, and Weighted Average smooths price fluctuations for stable results. Auditors generally prefer FIFO or Weighted Average for transparency and compliance. Weighted Average suits most businesses when prices change frequently.

 

[deepak]

In the unstable price conditions, FIFO is more profitable but more taxed, LIFO is less taxed but not IFRS-compliant and Weighted Average averages price changes so as to provide consistent outcomes. Transparency and compliance Auditors typically would use FIFO or Weighted Average. Weighted Average is applicable in most businesses with constantly shifting prices.