Change Valuation Method for a Stock Item in TallyPrime: 4 Steps

Changing the valuation method for a stock item in TallyPrime involves updating the approach used to calculate the inventory’s value.

This change can significantly impact financial statements, as different valuation methods reflect various cost assumptions.

1. Detailed Steps to Change Valuation Method in TallyPrime:

1. Open TallyPrime:

Go to Gateway of Tally.

2. Access Stock Item:

• Navigate to Inventory Info > Stock Items > Alter.
• Select the stock item you want to modify.

3. Alter Valuation Method:

Once inside the Stock Item alteration screen, locate the field labeled Costing Method.

TallyPrime offers several valuation methods:

• FIFO (First In, First Out): Values inventory based on the cost of the earliest purchased items.
• LIFO (Last In, First Out): Values inventory based on the cost of the latest purchased items.
• Average Cost: Values inventory based on the average cost of all items in stock.
• Standard Cost: Uses a pre-set standard price for valuation.
• At Zero Cost: Values inventory at zero cost, typically used for free samples or donations.

Select the new method from the list.

4. Save Changes:

After selecting the new valuation method, press Enter to save the changes.

2. Example of Changing Valuation Method in TallyPrime:

Suppose a business initially uses the FIFO method, valuing inventory based on the earliest purchased items.

Over time, the business might want to switch to the Average Cost method to smooth out price fluctuations.

1. Before Change:

Inventory valued using FIFO might show higher values if the earlier purchased items were more expensive.

2. After Change:

By switching to the Average Cost method, the inventory is valued using the average of all purchase costs, leading to potentially lower or more stable inventory valuation.

3. Impact on Financials after Changing Valuation Method in TallyPrime:

1. Cost of Goods Sold (COGS):

The method change can alter COGS calculations, affecting the gross profit margin.

2. Inventory Value:

The balance sheet inventory value will be recalculated based on the new method, influencing the business’s financial position.

4. Compliance Considerations:

Ensure the new valuation method complies with accounting standards and regulations relevant to your industry or region.

Document the reason for the change and its expected impact on financial statements.

5. Conclusion:

Changing the valuation method for a stock item in TallyPrime is a strategic decision that can significantly influence financial reporting.

The process is straightforward, but businesses must carefully consider the implications, including compliance with accounting standards and the impact on financial metrics like COGS and inventory value.