Specific Identification Inventory Valuation Method

What Is the Specific Identification Inventory Valuation Method?

The specific identification inventory valuation method is a system for tracking each and every thing in an inventory exclusively from the time it enters the inventory until the time it leaves it. This recognizes the method from LIFO or FIFO, which gatherings bits of inventory together in view of when they were purchased and the amount they cost.

In the specific inventory method, every thing is labeled with its purchase cost and any extra costs that are incurred until it is sold.

Understanding Specific Identification Inventory Valuation Method

Specific identification inventory valuation is frequently utilized for additional costly things like furniture or vehicles. It likewise is utilized when the products stored have widely various elements and costs.

Incidentally, distinguishing specific securities is utilized. This method of identification permits investors to reduce or offset capital gains by picking a specific part of securities to be utilized as the basis for a sale.

Clearly, this inventory method takes more work upfront than the alternatives. It probably won't be a reasonable utilization of time for a seller of shirts or candles. Be that as it may, it very well may be exceptionally valuable to a seller of a wide assortment of merchandise who needs a constant flow of data on what products or styles are in demand, what's not selling, and what needs restocking.

Likewise, it has reasonable purposes in accounting. It makes it simple to ascertain the ending inventory cost. That figure tells the company the total annual expenses associated with all unsold goods in its inventory. It likewise gives a profoundly accurate figure to the cost of goods sold.

Instances of Specific Identification Inventory Valuation Method

Model 1

Assume a vehicle sales center has 50 cars on the parcel. Every vehicle has an alternate dealer cost and an alternate sales price in light of the model and its elements. Every one of the cars is followed independently from the time they enter the part until they are sold.

In this case, the benefits are clear. The owner of the dealership gets an undeniably more valuable stream of data about the models and the highlights that are generally well known with its customers.

Model 2

This level of detail additionally can be helpful for tax harvesting. Say an investor possesses 1,000 shares of ABC company, an unstable small-cap manufacturer. It incorporates 400 shares purchased for $40 per share, 300 shares at $60 per share, and the leftover 300 shares at $20 per share.

The investor then sells 300 shares at $70 per share. At tax time, utilizing the method depicted over, the investor can undoubtedly match up the shares sold for $70 with the most costly of the shares purchased (for $60 per share). The taxable capital gains due are in this way limited.

Features

• The specific identification inventory valuation method is utilized to independently follow each purchase and its price.
• When utilized for inventory management, it gives more valuable data on sales.
• When utilized for tracking investments, it can reduce capital gains taxes due.