Inventory Valuation: Presentation and Disclosure under IFRS vs. US GAAP

A company switches from the FIFO inventory valuation method to the weighted average method. Beginning inventory on 1 January was 147 units, which cost EUR 180 each. Two purchases were made: in July for 200 units at EUR 175 each and in October for 300 units at EUR 170 each. Ending inventory was 110 units. Which of the following is _most likely_ to be correct?

Incorrect. Under IFRS and US GAAP, often a change in inventory valuation method requires that these changes be done retrospectively, usually the previous year or two, in order to create comparable financial statements. The company must prove that the new method will allow it to create more reliable financial statements.

Incorrect. This is actually what the value would be using the weighted average method.

Great! Using the weighted average method, the total value of the units available is EUR 112,460 and there were 647 units available: $$\displaystyle \frac{112,460}{647} = 173.82$$. Therefore, the 537 units are worth $$537 \times173.82 = 93,341.34$$.

COGS is EUR 93,341.34 using the weighted average method

Ending inventory is valued at EUR 19,120.20 if they still used the FIFO method

The company can change its valuation method without having to apply it retrospectively