Valuation of Closing Finished Goods: FIFO, LIFO and Weighted Average

## Valuation of Closing Finished Goods (FG)

When opening stock and current-period production are valued at different rates, the value of closing FG depends on the assumed flow of goods.

> Doubt Buster: A stock-valuation issue (FIFO / LIFO / Weighted Average) arises only when opening-stock units and current-period production units are valued differently. If both are at the same rate, the method makes no difference.

Common data used below

• Cost of Production (COP): ₹10,00,000 for 10,000 units (₹100/unit)
• Opening Stock: ₹10,00,000 for 8,000 units (₹125/unit)
• Units sold: 11,000; Closing stock: 7,000 units

### I. FIFO — Opening stock is sold first

Sales (11,000) consume all 8,000 opening units + 3,000 of current production. So closing stock of 7,000 comes fully out of current production (₹100/unit):

$$\text{Closing FG} = \frac{₹10{,}00{,}000}{10{,}000}\times 7{,}000 = ₹7{,}00{,}000$$

### II. LIFO — Current-period production is sold first

Sales (11,000) consume all 10,000 current units + 1,000 opening units. So closing stock of 7,000 comes fully out of opening stock (₹125/unit):

$$\text{Closing FG} = \frac{₹10{,}00{,}000}{8{,}000}\times 7{,}000 = ₹8{,}75{,}000$$

### III. Weighted Average — the combined mix is sold

Pool opening stock and current production, find one average rate:

$$\text{Weighted Avg rate} = \frac{₹20{,}00{,}000}{18{,}000} = ₹111.11/\text{unit}$$

$$\text{Closing FG} = ₹111.11 \times 7{,}000 = ₹7{,}77{,}778$$

### Compare the three answers