Question

Method of valuation of inventory and its advantages and disadvantage of each of the method

Answer 1

Advantages and disadvantages of weighted-average When a company uses the weighted-average method and prices are rising, its cost of goods sold is less than that obtained under LIFO, but more than that obtained under FIFO. Inventory is not as badly understated as under LIFO, but it is not as up-to-date as under FIFO.

Answer 2

One of the biggest disadvantage of FIFO approach of valuation for inventory/stock is that in the times of inflation it results in higher profits, due to which higher “Tax Liabilities” incur. It can result in increased cash out flows in relation to tax charges.