The specific identification method is one of the accounting methods used for the valuation of the inventory where the track of every item of the inventory used in the company is kept, from the time such inventory comes in the business till the time it goes out of business, along with
assigning the cost to each such items individually rather than grouping them. Companies that deal with high-value items such as jewelry, handicrafts, etc., mainly use this method as it keeps a record of each of such items having high value. Company Y ltd. Deals with different trading pens in the market. In August 2019, the following transactions
took place in the company.
In August 2019, the company sold a total of 1,100 units. Out of the total inventory sold, 400 units are sold out of purchases on 01-Aug-2019; 200 units out of the purchases made on 08-Aug-19; 200 units out of the purchases made on 22-Aug-19; the rest of 300 units out of purchases made on 31-Aug-19. Calculate the value of the closing stock of the companyClosing stock or inventory is the amount that a company still has on its hand at the end of a financial period. It may include products getting processed or are produced but not sold. Raw materials, work in progress, and final goods are all included on a broad level.read more at the end of August 2019 and the goods sold during August 2019. Solution Calculation of the closing stock at the end of August 2019; Thus, the closing stock value at the end of August 2019 is $ 2,420. Calculation of the cost of goods sold for August 2019; Thus the value of the cost of goods sold for August 2019 is $ 1,315. Advantages
Disadvantages
Important Points
ConclusionSpecific Identification Method is one of the vital inventory valuation Inventory Valuation Methods refers to the methodology (LIFO, FIFO, or a weighted average) used to value the company's inventories, which has an impact on the cost of goods sold as well as ending inventory, and thus has a financial impact on the company's bottom-line numbers and cash flow situation.read more concepts in accounting wherein each inventory item and its associated cost is tracked to identify the critical items like Cost of goods soldThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. read more, beginning inventory and ending inventoryThe ending inventory formula computes the total value of finished products remaining in stock at the end of an accounting period for sale. It is evaluated by deducting the cost of goods sold from the total of beginning inventory and purchases.read more. However, it is not the case in the companies where the FIFO (First in, first out), LIFO (Last in, first out), or any other method for the valuation of inventory is used as those methods group the different items together based on certain specified criteria. Recommended ArticlesThis article has been a guide to the Specific Identification Method. Here we discuss how to use this method and examples, advantages, and disadvantages. You can learn more about finance from the following articles –
Which of the following is a reason why the specific identification method?Which of the following is a reason why the specific identification method may be considered ideal for assigning costs to inventory and cost of goods sold? The cost flow matches the physical flow.
How do you use the specific identification method?To calculate ending inventory with the specific identification method, you track the exact purchase price and other costs related to individual items. The total cost of the inventory items at the end of the accounting period gives you the total ending inventory cost.
When would a company use the specific identification method of inventory cost allocation?The specific identification method relates to inventory valuation, specifically keeping track of each specific item in inventory and assigning costs individually instead of grouping items together. It is useful and usable when a company is able to identify, mark, and track each item or unit in its inventory.
Which statement applies to the specific identification inventory method?Which statement applies to the specific identification inventory method? Each unit sold is identified with a specific purchase. Why does the specific identification inventory method work well for business such as automobile dealerships? This method works because each automobile has a unique serial number.
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