Compare Stock Valuation Methods in TallyPrime: With Examples

In TallyPrime, the Comparison of Valuation Methods report allows you to analyze how different inventory valuation methods impact the value of your stock and financial statements.

This report helps businesses understand the effect of each method on inventory valuation, enabling informed decision-making.

1. Steps to Access the Inventory Valuation Report in TallyPrime:

1. Open TallyPrime: Go to the Gateway of Tally.
2. Access Stock Reports: Navigate to Display More Reports > Inventory Reports > Statement of Inventory > Inventory Details > Stock Item.
3. Compare Valuation Methods: In the stock item report, select the F12: Configure option and enable Show Different Valuation Methods.

2. Available Stock Valuation Methods in TallyPrime:

1. FIFO (First In, First Out):

• Description: Assumes the first items purchased are the first sold.
• Impact: In periods of rising prices, FIFO results in lower COGS and higher inventory values.
• Example: If the cost of an item has increased over time, FIFO will show lower costs on the income statement and higher closing inventory.

2. LIFO (Last In, First Out):

• Description: Assumes the last items purchased are the first sold.
• Impact: During inflation, LIFO results in higher COGS and lower inventory values.
• Example: If costs have increased, LIFO will show higher costs on the income statement and lower closing inventory.

3. Average Cost:

• Description: Calculates the average cost of all items available for sale during the period.
• Impact: Smoothens out price fluctuations by averaging costs, providing stable inventory valuation.
• Example: If an item was bought at different prices, Average Cost will reflect a blended cost that doesn’t skew too high or too low.

4. Standard Cost:

• Description: Uses a predetermined cost set by the business, regardless of purchase prices.
• Impact: Ensures consistent pricing but may not reflect actual cost changes.
• Example: Useful when a business wants to maintain a steady inventory value without considering market fluctuations.

5. At Zero Cost:

• Description: Values inventory at ₹0, typically used for items received for free.
• Impact: No impact on financial statements from these items since they are valued at zero.
• Example: Used for free samples or promotional items where the business incurs no cost.

3. How to Interpret the Stock Valuation Report in TallyPrime:

1. COGS and Profitability:

Each method affects the Cost of Goods Sold (COGS) differently, influencing profitability.

2. Inventory Valuation:

The report shows how each method affects the value of inventory on the balance sheet.

4. Conclusion:

The Comparison of Valuation Methods report in TallyPrime is a powerful tool for understanding how different inventory valuation strategies impact your business’s financials.

By analyzing these methods side by side, you can make informed decisions that align with your financial goals and accounting practices.