The inventory value for cost accounting represents the financial value of inventory.
The inventory value is based on the lower of acquisition cost or actual value. This is a principle commonly refered to as the "lower of cost or market." Here, acquisition cost represents cost and actual value represents market. These two values must first be determined before valuing inventory.
Acquisition cost is generally based on the historical purchased cost or the invoice price of an item. Actual value represents the current (market) value of inventory. It could include a write-down (depreciation) due to price changes, damage or obsolescence.
Inventory valuation covers all items in stock, including raw material, components and finished products. The valuation can be done on the item or facility level, enabling you to use different methods for the same item in different facilities.
The inventory value can differ from the recorded value at the date of valuation. Depending on your configuration, the recorded value is created on a perpetual or periodic basis based on the cost of inventory transactions. With the perpetual method the inventory value in the general ledger is updated continuously, based on the inventory accounting method of the item. The periodic method means that the inventory value is only created when the periodic inventory valuation is run in ‘Inventory Value. Open’ (CAS180)180).
M3 automatically computes and records the difference between the recorded value and the inventory value.