Historical Cost of Inventory
What is the Historical Cost of Inventory?
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Historical Cost of Inventory: Historical cost of inventory signifies the buying cost of inventory. As per rule, we compute value of inventory on the basis of historical cost and market cost which ever will be low. For illustration, you are wholesaler you had purchased inventory at the cost of $ 100 but now, similar inventory, you and other wholesaler are purchasing on $ 90. Therefore, net realizable value is less than the historical cost. Therefore we will compute inventory at $90.
Average Profit Method: (Goodwill method): The profit earned by an organization throughout previous accounting periods on an average basis is termed as average profit. Goodwill is computed on the basis of average profit due to prospect expectations of
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