Example Two Air Conditioners purchased in Rs. 20,000 each, Rs. 25,000 each in Feb. One sold in March, cost of goods sold: Rs. 20,000 or Rs. 25,000?

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Presentation transcript:

Example Two Air Conditioners purchased in Rs. 20,000 each, Rs. 25,000 each in Feb. One sold in March, cost of goods sold: Rs. 20,000 or Rs. 25,000?

Inventory Approaches Specific identification: Unit(s) identified specifically. Cost-flow assumptions

Cost Flow Assumptions Three methods for measuring “cost of good sold”, under GAAP. –Average cost –First in First out (FIFO) –Last in First Out (LIFO)

During Inflation:- FIFO shows less expenses (income statement) and higher inventory valuation (balance sheet); values ending inventory nearer to current cost. LIFO shows higher expenses (income statement) and lower inventory valuation (balance sheet).

Accounting Policies Regarding Depreciation Expired or used portion of a fixed asset during an accounting period: to achieve matching principle.