To Our Presentation on Inventories

 What is FIFO  Why a company take FIFO method for their industry

 Advantages of FIFO Method  Disadvantages of FIFO Method

 LIFO is an acronym that stands for last in, first out.  The LIFO method assumes that the latest goods purchased are the first to be sold. LIFO seldom concedes with the actual physical flow of inventory  Under the LIFO method, the costs of the latest goods purchased are the first to be assigned to cost of goods sold.

 In the case of falling prices profit tends to rise due to lower material cost, yet the finished products appear to be more competitive and are at market price.  Over a period, the use of LIFO helps to iron out the fluctuations in profits  In the period of inflation LIFO will tend to show the correct profit and thus avoid paying undue taxes to some extent

 Calculation under LIFO system becomes complicated and cumbersome when frequent purchases are made at highly fluctuating rates.  Costs of different similar batches of production carried on at the same time may differ a great deal.  This method of valuation of material is not acceptable to the income tax authorities

 Difference from LIFO and FIFO:  Use of Weighted Average Cost Method:

 Advantages of Weighted Average Cost Method  Consistency  Less Paper Work  Simple Conclusion

 Disadvantages of Weighted Average Cost Method  Less Accurate  Slow or False Reflect in Change

 Effects of Financial Statement  Effects of Income Statement  Effects of Balance Sheet  Effects on Cash Flow Statement

 Better control over inventories than a periodic system  The inventory records show the quantities that should be on hand.  The company which use perpetual system can count the goods at any time to see whether the amount of goods actually on hand agrees with the inventory records.

 If find shortages, the company can investigate immediately.  It requires additional electrical and additional cost to maintain the subsidiary records.  A computerized system can minimize this cost.