FIFO (First-In-First-Out) values inventory assuming the earliest purchased stock is consumed first. LIFO (Last-In-First-Out) assumes the most recent purchases are consumed first. Indian accounting standards (Ind AS 2 / AS 2) permit FIFO and Weighted Average Cost but do not permit LIFO.
Why It Matters
The valuation method drives cost of goods sold, inventory on the balance sheet, and tax liability. In a rising price environment, FIFO shows higher profits (and higher tax), while LIFO would show lower profits. Since Indian GAAP and IND AS only permit FIFO or Weighted Average, Indian manufacturers must pick one and apply it consistently.
Example with Indian Context
A wire manufacturer buys copper in 3 lots: 100 kg at INR 720, 100 kg at INR 740, 100 kg at INR 760. The next day, 150 kg is consumed. Under FIFO, cost is 100 x 720 + 50 x 740 = INR 1,09,000. Under Weighted Average, cost is 150 x 740 = INR 1,11,000. The difference of INR 2,000 flows to profit and closing stock. On hundreds of transactions per month, the cumulative impact is material.
Related Terms
How ERPDrive Handles It
ERPDrive supports FIFO, Weighted Average, and Standard Cost valuation at the item-warehouse level. It maintains cost layers per receipt, revalues stock at every GRN, and produces valuation reports that tie to the trial balance.
See It in Your Factory
ERPDrive handles FIFO valuation as a first-class workflow alongside BOM, MRP, quality, and GST. Book a 30-minute demo.
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