Under which method of stock valuation are closing stocks valued at their last purchase price?
A. LIFO
B. FIFO
C. Last Purchase Cost
D. Standard Price
Answer (2)
In the context of stock valuation, the student's question is asking about how closing stocks are valued using different inventory costing methods. Each method records the costs of inventory differently based on the timing and sequence of stock purchases.
Here's a breakdown of the options provided:
LIFO (Last In, First Out): Under this method, the last items added to inventory are assumed to be the first ones sold. Therefore, the older inventory might be left as closing stock, not reflecting the last purchase prices.
FIFO (First In, First Out): This method assumes that the first items purchased are the first to be sold. The closing stock is valued at the most recent purchase prices, but it doesn’t strictly mean 'last' purchase price unless all recent purchases are part of the closing stock.
Last Purchase Cost (Correct Option): This method specifically uses the cost of the most recent purchase to value ending inventory. Therefore, closing stocks are explicitly valued at the last purchase price under this approach. This is a more straightforward approach when compared to LIFO or FIFO, which consider the chronological order of stock usage.
Standard Price: This involves valuing stock at a predetermined price, which is usually set for consistency in accounting, but it doesn't necessarily align with the most recent purchase prices.
Therefore, the correct answer is (C) Last Purchase Cost , which means closing stocks are valued at their last purchase price under this method. This method provides a clear reflection of the latest costs in accounting records, reducing variability in stock valuation and simplifying financial analysis.
The method of stock valuation that values closing stocks at their last purchase price is called Last Purchase Cost . This approach directly uses the cost of the most recent purchase for inventory valuation. Therefore, the correct answer is option (C) Last Purchase Cost.
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