Calculate your stock value using FIFO, LIFO, or weighted average methods.
Inventory valuation puts a rupee value on the stock you still hold, and the method decides which purchase costs are assigned to it. FIFO (First In, First Out) assumes the oldest stock sold first, so remaining stock is valued at the newest costs. LIFO (Last In, First Out) assumes newest stock sold first, so remaining stock carries older costs. Weighted average values all units at one blended cost = total purchase cost / total units purchased.
You buy 100 units at ₹50 (Jan), 150 at ₹55 (Feb), and 200 at ₹60 (Mar), and 250 units remain. FIFO values them at the latest lots (200 at ₹60 + 50 at ₹55 = ₹14,750). Weighted average cost is ₹56.11/unit (₹25,250 / 450 units), so the 250 units are worth about ₹14,028.
Indian Accounting Standard (Ind AS 2) and AS 2 permit FIFO and weighted average, but LIFO is not allowed for financial reporting or income tax in India. LIFO here is shown only for comparison.
Most Indian retailers use weighted average because it is simple and smooths out price changes, while FIFO suits perishables and dated stock. Pick one and apply it consistently.
GST is charged on the actual sale value, not on your inventory valuation method. Valuation mainly affects your closing stock figure, cost of goods sold, and reported profit.
At minimum at financial year-end for your books, but reviewing monthly helps you spot dead stock, price drift, and cash tied up in inventory.
Stock value updated on every purchase and sale. FIFO, FEFO, and weighted average built in.
See Inventory Management
