Inventory valuation

Inventory can be valued using several valuation methods:

• Standard cost
• Mov. Aver. Unit Cost (MAUC)
• First In First Out (FIFO)
• Last In First Out (LIFO)
• Lot Price (Lot)
• Serial Price (Serial)

Valuation methods result in a particular inventory value in the ledger. However, the market value of the inventory can sometimes be lower than the inventory value in the ledger, for example, when item prices decrease, or when the items are almost at the end of their life cycle. Consequently, the value in the ledger does not always represent the real value of the inventory anymore.

The International Financial Reporting Standards (IFRS) in some cases require reporting the market value of the inventory instead of an inventory value determined by the original purchase prices. The market value can provide you with a better insight into the real value of the inventory. Reporting inventory value based on market values instead of (higher) purchase prices is also referred to as lower cost or market value (LCMV).

You can choose whether or not to revaluate the inventory value to the market value. Therefore, the following options are available:

• Reporting inventory value without revaluation

  The inventory value is determined using market values. However, this inventory market valuation is only temporary. At the start of the next financial period, the original inventory value (based on purchase prices) is used.

• Reporting inventory value with revaluation

  The inventory value is determined using market values. After that, the inventory is revalued with the market value. So, at the start of the next financial period, the market value is used as the new inventory value.

Market values in Warehousing

In LN, you can use market values to valuate inventory for purchased items as well as for manufactured items. Market values can be entered in the Market Values (whina1118m000) session.

Market values, which are either approved purchase prices or manually entered prices, are used in the following sessions:

• Perform Inventory Valuation (whina1210m000)

  If, on the Difference tab, under Compare Inventory Value With, either of the following options is selected:

  • Market Value (including surcharges)
  • Market Value (excluding surcharges)

• Change Valuation Method (whina1232m000)

  If, after changing the valuation method, the inventory value must be equal to the market value.

• Actual Costs Correction (whina1230m000)

  If the valuation method is First In First Out (FIFO), Last In First Out (LIFO), Lot Price (Lot), Serial Price (Serial), or Moving Average Unit Cost (MAUC), and the inventory value must be equal to the lowest of the current inventory value and the market value.

• Calculate Standard Cost (ticpr2210m000)

  If the valuation method is Standard Cost, and the new standard cost (and inventory value) must be equal to the lowest of the current standard cost and the market value.

If an item's market value that is entered in the Market Values (whina1118m000) session is lower than the item's original purchase price, the market value is used to calculate the valuation price.