Question: Along With Specific Identification Which Inventory Valuation Method Reduces Profit Manipulation?


Does the use of specific identification inventory costing method avoid the possibility of manipulation of earnings?

Companies that use the specific identification method of ‘ inventory costing ‘ state their cost of goods sold and ending inventory as the actual cost of specific units sold and on hand. However, one disadvantage of the specific identification method is that it permits the manipulation of income.

What is the specific identification method of inventory valuation?

The specific identification inventory valuation method is a system for tracking every single item in an inventory individually from the time it enters the inventory until the time it leaves it.

Why FIFO method is better for inventory management?

FIFO can be a better indicator of the value for ending inventory because the older items have been used up while the most recently acquired items reflect current market prices.

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What type of company would use the specific identification inventory method?

While the specific identification method can be utilized by larger companies with electronic tags or stickers with serial numbers that can be scanned into an electronic inventory tracking system, it is most common with smaller businesses that can easily identify or count items in their inventory.

What are 4 factors that must be considered for accurate inventory valuation?

Having an accurate valuation of inventory is important because the reported amount of inventory will affect 1) the cost of goods sold, gross profit, and net income on the income statement, and 2) the amount of current assets, working capital, total assets, and stockholders’ or owner’s equity reported on the balance

Which inventory method is best?

The most popular inventory accounting method is FIFO because it typically provides the most accurate view of costs and profitability.

Which of the following is an inventory valuation method?

There are three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost). In FIFO, you assume that the first items purchased are the first to leave the warehouse.

What are the specific valuation methods?

There are five main methods used when conducting a property evaluation; the comparison, profits, residual, contractors and that of the investment. A property valuer can use one of more of these methods when calculating the market or rental value of a property.

When would you use specific identification method?

The specific identification method is used to track individual items of inventory. This method is applicable when individual items can be clearly identified, such as with a serial number, stamped receipt date, bar code, or RFID tag.

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Which inventory method gives the highest net income?

LIFO gives the most realistic net income value because it matches the most current costs to the most current revenues. Since costs normally rise over time, LIFOs can result in the lowest net income and taxes.

How is FIFO calculated?

To calculate FIFO (First-In, First Out) determine the cost of your oldest inventory and multiply that cost by the amount of inventory sold, whereas to calculate LIFO (Last-in, First-Out) determine the cost of your most recent inventory and multiply it by the amount of inventory sold.

What companies use LIFO?

Just to name a few examples, Dell Computer (NASDAQ:DELL) uses FIFO. General Electric (NYSE:GE) uses LIFO for its U.S. inventory and FIFO for international. Teen retailer Hot Topic (NASDAQ:HOTT) uses FIFO. Wal-Mart (NYSE:WMT) uses LIFO.

What is specific identification method example?

With specific identification, you track the exact individual costs associated with each item in your inventory. For an antique you bought for resale, for example, costs might include the purchase price, shipping costs and marketing tied to that item.

What is the average cost method for inventory?

The average cost method assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced. The average cost method is also known as the weighted- average method.

How is inventory valued in accounting?

Inventory valuation is the cost associated with an entity’s inventory at the end of a reporting period. The inventory valuation is based on the costs incurred by the entity to acquire the inventory, convert it into a condition that makes it ready for sale, and have it transported into the proper place for sale.

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