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How is inventory valued using the first-in first-out method, and how does this determine cost of sales and closing inventory?

Apply the first-in first-out (FIFO) method under a perpetual system to value closing inventory and cost of sales, and value inventory at the lower of cost and net realisable value

WACE Year 12 Accounting and Finance Unit 3 on inventory valuation: applying the first-in first-out (FIFO) method under a perpetual system to determine cost of sales and closing inventory, and valuing inventory at the lower of cost and net realisable value.

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  1. What this dot point is asking
  2. The FIFO assumption
  3. Perpetual inventory under FIFO
  4. Lower of cost and net realisable value

What this dot point is asking

SCSA wants you to apply FIFO in a perpetual inventory record, calculate cost of sales and closing inventory, and apply the lower of cost and net realisable value rule.

The FIFO assumption

Perpetual inventory under FIFO

Under a perpetual system the inventory account is updated continuously. Each sale removes units at the cost of the earliest layer still on hand, working forward through later layers as earlier ones are exhausted.

Lower of cost and net realisable value