Pricing methods:-

  1. Actual purchase pricing method: the closing inventory is valued at actual purchase price. This is possible if the units are marked with those prices. For example, if 20 cans are marked with their purchase price, one can easily calculate their value as follows:-

2 cans @ Rs/- 20 each                                     =             Rs/- 40

10 cans @ Rs/- 30 each                                  =             Rs/- 300

5 cans @ Rs/- 40 each                                     =             Rs/- 200

Total  17 cans                                                     =             Rs/- 540/-

  1. Latest purchase price method: in case actual price is are not marked on the commodities, it is assumed that the stock has been properly rotated during the month and the units remaining in the shelf are those recently purchased. The latest price of closing inventory is known say:

10 cans @ Rs/- 30 each                  =             Rs/- 300

7 cans @ Rs/- 40 each                     =             Rs/- 280

Total 17 cans                                      =             Rs/- 580

  1. Recent purchase price method: in operation where number of units received on a particular date are not known, the common practice is to use the most recent purchase price in valuing the closing inventory, the closing inventory on the basis of the most recent purchase price will be:-

17 cans @ Rs/-30 each                   =             Rs/-510

  1. Earlier purchase price method: the earliest purchase price method is suitable in periods of high inflation. The management directs that costs are to be kept at a relatively higher order to minimize profits. The profits are minimized in financial statements in order to decrease income taxes. In times of rising prices the closing inventory is valued at earliest purchase price.

10 cans @ Rs/- 20 each                  =             Rs/- 200

10 cans @ Rs/-30 each                   =             Rs/-300

Total 20 cans                                      =             Rs/-500

  1. Weighted average price method: this method is suitable in case of large quantities of stocks and when there is no certainty about the rotation of stock. The weighted average purchase is calculated by multiplying the number of units in the opening inventory in each purchase by their individual purchase prices, adding these values to determine a total value for all units together and then dividing by the number of units involved.

Issuing:-

  1. Actual price:- FIFO & LIFO
  2. Average price: simple average and weighted average