Question

What is the basis of inventory valuation employed by the business for each category?

1) First-in, first-out (FIFO)
2) Last-in, first-out (LIFO)
3) Lower-of-cost-or-market (LCM)
4) Weighted average

Answer 1

The basis of inventory valuation employed by a business for each category can vary. The four common methods are First-in, first-out (FIFO), Last-in, first-out (LIFO), Lower-of-cost-or-market (LCM), and Weighted average.

Step-by-step explanation:

The basis of inventory valuation employed by a business for each category can vary. The four common methods of inventory valuation are:

1. First-in, first-out (FIFO): This method assumes that the first items purchased or manufactured are the first ones sold.
2. Last-in, first-out (LIFO): Here, the assumption is that the last items purchased or manufactured are the first ones sold.
3. Lower-of-cost-or-market (LCM): Under this method, inventory is recorded at the lower of its cost or its current market value.
4. Weighted average: This method calculates the average cost per unit by dividing the total cost of goods available for sale by the total number of units.

The choice of inventory valuation method depends on factors such as industry practices, taxation regulations, and financial reporting requirements.