IAS 2Chapter 5Lesson 1
Cost formulas: specific identification, FIFO and weighted average cost
Step 1 of 9Learning objectives
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When identical items are bought at different prices, which cost leaves inventory when they are sold? IAS 2 reserves specific identification for items that are not interchangeable and for goods set aside for specific projects; for all other inventories, only two formulas are provided, first-in, first-out (FIFO) and weighted average cost, applied consistently to all inventories of a similar nature and use.
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Learning objectives
- Recognise the inventories whose cost must be determined by specific identification and explain why this method does not suit interchangeable items.
- Explain that other inventories are measured using FIFO or weighted average cost, with the same formula for inventories of a similar nature and use.
- Calculate cost of sales and closing inventory under FIFO, the periodic weighted average and the weighted average recalculated after each receipt.
- Record the cost of sales that results from the formula applied.