What you'll learn
How stock is valued and why it matters.
Key ideas
- Inventory is valued at the lower of cost and net realisable value (NRV) — the prudence concept.
- Valuation methods: FIFO and AVCO.
- Overvaluing closing stock overstates profit.
Exam tips
- State and apply the prudence rule.
- Explain the effect of valuation on profit.
Common mistakes
- Confusing FIFO and AVCO.
- Forgetting the lower-of-cost-and-NRV rule.