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Which inventory valuation regardless of the particular approach used in
method to choose? practice, knowing how each of them reports
will offer a thorough understanding of the
The selection of an inventory valuation reasoning behind inventory management
method is influenced by several factors, approaches. To fully comprehend inventory
including the nature of the business, price value and how it affects financial reporting,
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volatility, and the entity’s financial reporting you must have a wide understanding of the
obligations. Among these, the financial subject.
reporting requirements are particularly
important. For instance, IAS 2 does not Applying the three methods
permit the use of LIFO method. In Tanzania, of inventory valuation
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where accounting practices generally After understanding the theories and
adhere to IFRS and IAS, businesses are principles behind the three inventory
not expected to use LIFO in their financial valuation methods, it is equally important
reporting. to comprehend their practical application.
Thus, all of the inventory valuation Let us proceed with Example 2.1, which
techniques: FIFO, LIFO, and WAM, should demonstrates their use in a scenario that
be understood, though. That being said, mirrors real-world business operations.
Example 2.1

Mzee Busara deals with buying and selling of door carpets. The following
transactions relate to his purchases for the year 2023, January to December 2023:
Date Units Units Unit cost Total cost
2023 sold purchased TZS TZS
5 Jan. 120 6,000 720,000
th
10 Feb. 120
th
28 Mar. 280 6,200 1,736,000
th
03 Apr. 160
rd
10 Apr. 160 6,300 1,008,000
th
20 May 80
th
30 Jun. 240 6,400 1,536,000
th
10 Jul. 200
th
4 Aug. 100
th
28 Aug. 400 6,600 2,640,000
th
02 Sep. 220
nd
10 Nov. 100 6,800 680,000
th
20 Dec. 280
th
Total 1,160 1300 8,320,000

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