A Basic Overview of Stock Valuation Methods

There are three methods with which you can revaluate your stock for Balance Sheet purposes.Irrespective of the method you select, you will be able to valuate your stock either at the Company Code level or at the Valuation Area level:
1. LIFO (Last-In-First-Out): This method is based on the assumption that the materials received last were the ones issued/consumed first. The valuation is based on the initial receipt.
2. FIFO (First-In-First-Out): Here the assumption is that the materials received first are the ones consumed/issued first. So, the valuation is based on the most recent receipt. The FIFO method can also be used in conjunction with the lowest value method. By this you can determine whether the system should make a comparison between the FIFO determined price and the lowest value price. You can also determine whether the FIFO price should be updated in the material master record.
3. Lowest Value Method: Here, the stocks are valued at their original price or the current market price whichever is lower. This method is suitable when the inventory needs to be valued to take into account material obsolescence, physical deterioration, or changes in price levels.

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