Valuation of Inventories

Valuation of Inventory

Inventory is those items or assets of an organization which have latent value , that is they are of financial value which will be realized in the future when these assets are actually put to use . Since these are valuable assets for which finance has been utilized and is blocked or lying idle , it is prudent and advisable to accurately keep track of these assets and their value to the organization . For this reason the assets are counted and valued regularly and this process is called inventory management and valuation

p The goods which are meant for resale by the retailers are termed as inventory and also the goods which are manufactured by the manufacturer are also termed as inventory . Therefore the finished and completed goods which the manufacturer sells to his customers who may be the distributors , or manufacturers or even end users , these goods are also included in inventory . There may be some goods which are partly complete and these are what is called as work-in-progress , while other goods may be in their original state and are termed as raw material , all these goods are included in inventory

Decision as to which goods to be included in inventory

The basic assumption of which goods to be included in inventory relies on the onus of ownership of the goods . Is as per the sale agreement the goods are billed FOB purchaser 's warehouse or factory then ownership passes onto the purchase only when the goods arrive at his...