Question

Why is the specific identification method of inventory valuation used infrequently?

Answer 1

Specific identification method:

This method is used when individual items of inventories are clearly identifiable. In general, This method is used for High value items which are clearly identified.Under this method, Cost of the each individual item is specific rather than similar cost for the similar items of inventory in the other method of FIFO,LIFO and Weighted average method.

This method is rarely used because of the following reasons:

1.There is few purchased products that are clearly identified. So, Tracking of each individual item is very difficult.

2.If the cost of the inventory is similar for similar products then it is easy to keep accounting records. But, in this method it is difficult to keep cost of the every individual item and providing unique code to identify each item of inventory. it's a very time consuming.

3.It is very time consuming process to track every individual item of inventory in unit basis.

4.The cost of the item and the amount received for the sale of the item – must be able to be attached to a specific item with some form of a unique identifier. The process is very difficult for larger businesses.

Because of the above reasons, specific identification method of inventory valuation used infrequently.

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