Question

What does IFRS say about using LIFO, FIFO, or the weighted average method?

Answer 1

As per IFRS, only FIFO and weighted average methods of inventory valuation are permitted. Use of LIFO method is prohibitted under IFRS.

Under IFRS, while using the FIFO or weighted average method, the inventory will be measured or valued at lower of the cost or net realizable value. And, the same formula used to determine the cost of inventory must be applied to all inventories of similar nature and use to the entity. IFRS also allows the reversal of the write downs of the inventory, made earlier.It means that any write down of inventory to net realizable value is recognized as an expense in the period in which it occurs. And any subsequent increases (upto the amount of the original write down) in the net realizable value is to be recognized as a decrease in inventory expense in the period occurred.