The Valuation of Stock

The closing stock figure at the end of the year may be valuated used several methods.

First in, First Out (FIFO) Method

This method of valuating closing stock assumes that stock of goods are sold in order of those which were first purchased ( First In) being sold first (First Out).

Last In, First Out (LIFO) Method

This method of valuating closing stock assumes that stock of goods are sold in order of those which were last purchased ( Last In) being sold first (First Out).

Average Cost (AVCO) Method

The average cost of each item of stock in hand is recalculated whenever there is a receival of new stock of goods. The new average cost is calculated by adding the old average cost to the unit cost of the new item of stock and divide by two.

Below is a fully worked example:

From the following figures calculate the closing stock value using the FIFO, LIFO and AVCO method of stock valuation.

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