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Specific identification is sometimes said to be the ideal method of assigning cost to inventory and...

Specific identification is sometimes said to be the ideal method of assigning cost to inventory and to cost of goods sold. Briefly indicate the arguments for and against this method of inventory valuation

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Answer #1

Specific identification method

Arguments for:

· Cost assigned can be based on physical flow of inventory.

· Best suitable for firms having high value inventory items and lower quantity.

· Accurate calculation of cost of goods sold and closing inventory

Arguments against:

· Time consuming and tedious exercise of matching at item level

· May not be suitable for organisation having large inventory items with lower values

· Additional cost in terms of maintaining records for issue of goods

· Net income can be manipulated by wrong assignment of inventory costs.

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