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unexpected decreases in inventory.Also, course of business less the estimated costs
it is known as inventory shrinkage. This of completion and the estimated costs
real-time data can be crucial for effective necessary to make the sale.
inventory management and loss prevention.
Methods of inventory
Activity 2.1 valuation
FOR ONLINE READING ONLY
Imagine that you are the manager of a
small retail business: Would you choose a After quantifying the physical inventory,
perpetual or a periodic inventory system the next step is to assign costs to each
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for your store? Justify your choice item. This allows for the calculation of the
considering factors such as the nature closing inventory value to be included in
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of the goods you sell, the size of your the financial statements. The techniques
business, and the resources available. In used to determine the value of inventory
your own words, explain the difference
between a perpetual and a periodic at a specific time are known as inventory
inventory management system. Provide valuation methods.
an example of a type of business that
might use each system and explain why Generally, there are three types of inventory
that system is a good fit. valuation methods including, First in First

Inventory valuation Out (FIFO), Last in First Out (LIFO) and
Weighted Average Method (WAM). The
Inventory valuation is the process of definitions, advantages and disadvantages
determining the monetary worth of the of each method are considered in the
inventory at particular date. This valuation following sections:
is crucial for reporting accurately the value
of inventory in financial statements. It also First In First Out (FIFO) Method
serves an important role in calculating the The FIFO technique evaluates inventory
value of inventory that has been damaged under the presumption that the first things
or lost, which is vital for insurance claims.
received by the retailer would be used or
The process of inventory valuation issued first. Materials that are received last
entails several steps. Initially, it involves will therefore be used or issued last. Because
verifying the physical presence (existence) it is expected that the ending inventory
and ownership of the inventory items. consists of the most recent purchases items,
Subsequently, the unit cost of each item it is valued using the most recent cost prices
is determined. If necessary, provisions
are calculated to adjust the inventory in this manner. This approach corresponds
cost to its net realisable value, which is with the way most businesses naturally
the estimated selling price in the ordinary move things through their inventory.

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