Valuing inventory using FIFO and weighted average, and the rule of cost or net realisable value.
Closing inventory must be valued for the financial statements. Its value affects cost of sales, so it directly changes profit.
The valuation rule
Inventory is valued at the lower of cost and net realisable value (NRV) — a prudence application.
Cost — what was paid (including carriage inwards).
NRV — expected selling price less costs to complete and sell.
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