Inventory valuation practice: FIFO, AVCO and LIFO

A new stores ledger card every time. Fill in the issues and balance, check each cell, and print a worksheet and key.

Layout
Level

LIFO is not allowed for financial statements under IFRS (IAS 2). The AAT LIFO card is for costing practice only.

How cells are marked
  • Values are right within 1 cent. Unit costs must be the exact cent, rounded half up (or one of the AVCO roundings below); a cent off is “close”. Units must be exact.
  • FIFO and LIFO: write each batch in the unit cost cell, like 60 @ 2.10, 40 @ 2.30.
  • AVCO: the unit cost after each receipt is rounded to the nearest cent and issues go out at it. The balance after an issue is the value before less the issue. Writing it as units × unit cost, or costing issues at the unrounded average, is also marked right.
  • Returns are in brackets in the column they reverse, at the cost first recorded. A customer return goes back at the front of the FIFO queue or on top under LIFO, and the AVCO unit cost is worked out again. Type a return with or without brackets.

Set

Invented businesses and figures, for practice only. Wide cards scroll sideways; Enter moves to the next cell.

    How the problems are made

    Each problem is an invented trader’s month: an opening balance, three or four deliveries at prices that change, and three sales or issues, all in whole cents. A card is only used when the methods give different answers, a FIFO or LIFO issue has to come from two batches, and no AVCO rounding lands exactly on half a cent, so there is one right answer in every cell. Every card in the key balances: opening plus purchases equals cost of sales plus closing inventory.

    A worked FIFO card

    In set BXFSQ2, the store opens October with 90 box files at $4.05 ($364.50) and receives 60 at $4.40 on 2 Oct. On 3 Oct it issues 110. FIFO takes the oldest first: 90 @ $4.05 = $364.50 and 20 @ $4.40 = $88.00, so the issue costs $452.50 and the balance is 40 @ $4.40 = $176.00. Under AVCO the 150 units would average $628.50 ÷ 150 = $4.19, so the same issue would cost $460.90. Open set BXFSQ2

    What each level covers

    1, periodic: units and cost of goods available, closing inventory and cost of sales under FIFO and the weighted average (US layout adds periodic LIFO). 2 and 3: a full stores ledger card under FIFO or AVCO, as in Cambridge 9706 topic 2.1.1. A perpetual LIFO card is in the US layout and, labelled as AAT costing practice for internal use only, in the UK layout. 4: cost of sales, gross profit and closing inventory under each method, and which gives the highest profit. 5: lower of cost and net realisable value, line by line, and the effect of getting it wrong (IGCSE 0452 topic 4.5). 6: cards with goods returned to the supplier and by customers.

    Questions

    How do you fill in a stores ledger card using FIFO?

    Work down the card in date order. A receipt adds a new batch to the balance at its own unit cost. An issue takes units from the oldest batch first, then the next, so one issue can need two lines. After every line, write what is left batch by batch and add up the balance value.

    How do you work out AVCO on a stores ledger card?

    After each receipt, divide the balance value by the balance units to get the new average unit cost. Issues go out at that cost until the next receipt. This page rounds the unit cost to the nearest cent and also accepts the two other common roundings, shown in the key.

    Why is LIFO not allowed under IFRS?

    The IASB removed LIFO from IAS 2 in its 2003 revision, as generally not a reliable picture of how goods flow. US GAAP still allows it, so the US layout has a LIFO card. AAT Level 2 costing still teaches LIFO for internal use, so the UK layout has a LIFO card labelled as AAT costing practice only.

    Which method gives the highest profit when prices rise?

    FIFO. The older, cheaper costs go to cost of sales and the newest costs stay in closing inventory, so cost of sales is lowest and gross profit highest. LIFO gives the lowest profit and AVCO falls between. When prices fall, the order reverses.

    What is the difference between periodic and perpetual inventory?

    A perpetual system updates the balance after every receipt and issue, which is what a stores ledger card does. A periodic system values the goods counted at the end of the period from the purchases. FIFO gives the same answer both ways; the average method and LIFO usually do not.

    What is net realisable value?

    The expected selling price less the costs to complete and sell the goods. Inventory is valued at the lower of cost and net realisable value, line by line. If a line is worth less than it cost, the write-down reduces gross profit in the year it is found.

    Sources, checked October 26, 2026: Cambridge International AS & A Level Accounting 9706 syllabus 2026-2028 (PDF), topic 2.1.1; Cambridge IGCSE Accounting 0452 syllabus for 2026 (PDF), topic 4.5; AAT Level 2 Certificate in Accounting specification, version 5.7 (PDF), Principles of Costing 2.1; IAS 2 Basis for Conclusions BC9 to BC13 (AASB copy, PDF): LIFO removed; IFRS Interpretations Committee staff paper, February 2021 (PDF): the NRV definition and IAS 2 paragraph 29; FASB ASU 2015-11, full text on PwC Viewpoint: lower of cost and net realizable value; OpenStax Principles of Accounting, Volume 1, section 10.3 (perpetual FIFO, LIFO and moving average).