Like inventory of commodities like gold, silver , oil etc if presuming, on book closure week price falls by 20% to recover the following week by say 15 %?
What is the best mehodology of year end inventory valuation having high price volatility ?
Answers
When I was in that industry we recorded purchases at cost (segregated between a "labor" component and the value of the metal).. We sold based on a markup of the days value of the precious metal.
At period end, inventory was valued at "labor" plus its value in metal at COB.
One textbook answer is "...support exists for recording inventory at "net realizable value", even if that amount is above cost. GAAP permits this exception to the normal recognition rule under the following conditions: (1)when there is a controlled market with a quoted price applicable to all quantities, and (2)when no significant costs of disposal are involved." So you could revalue this inventory at each period end, or each time a balance sheet is produced for external reporting (and internal reporting, if desired).