First In First Out Method (FIFO)
Under this method, it is assumed that the materials/goods first received are the first to be issued/sold. Thus, according to this method, the inventory on a particular date is presumed to be composed of the items which have been acquired most recently
Advantages. The FIFO method has the following advantages:
1. It values stock nearer to current market prices since stock is presumed to be consisting of the most recent purchases.
2. It is based on cost and, therefore, no unrealised profit enters into the financial accounts of the company.
3. The method is realistic since it takes into account the normal procedure of utilisinglselling those materials/goods which have been longest in stock.
Disadvantages. The method suffers from the following disadvantages: [Read more…]