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What is the best mehodology of year end inventory valuation having high price volatility ?

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 %?


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

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.

Mark Sutherland
Title: CFO
Company: Profit By Design CFO & Controller Servic..
(CFO, Profit By Design CFO & Controller Services) |

One textbook answer is " 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).


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