Question

For most entities, applying the appropriate concepts/assumptions in accounting for inventories is an important element in preparing their financial statements.

Required: Illustrate with examples how each of the concepts/assumptions in (a) may be applied to accounting for inventory

Answer 1

There are various assumptions which are applied to goods so that the cost of goods avaible remain equal for purpose of tax and finacial statements. these methods are wieghted average cost , first in first out , last in first out . these all methods maintained the of total cost of goods sold plus cost of remaining inventory must be equal. all these assumptions of total cost of goods sold should be equal to price paid for inventory. In first in first out method shows flow of goods that the first purchased goods must be sold first same as last in first out the begining inventory must be retained in the last but this does not show the real flow of good. in lifo one should must flow mangement rules and should keep book keeping. all these assuptions are required for financial statements.