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What does it mean to write off materials at average cost, FIFO and LIFO? What is the best way to write off?
Each method of estimating the cost of materials has its advantages, so the organization must independently choose and fix one of the methods in the accounting policy (FIFO, at average cost, at the cost of each unit).
Detailed information on methods for estimating the cost of materials is contained in the materials of the Glavbukh System.
Cost estimation methods
To determine the price of materials written off to operation (production), that is, the amount that is debited from account 10, the organization must choose one of the ways to evaluate them:
Fix the choice of method for estimating the cost of materials written off in the accounting policy for accounting purposes. *
Estimated at the cost of each unit
When using the method of estimating the cost of materials at the cost of each unit, it is assumed that it is always known exactly from which delivery this or that unit of materials is taken. In this case, the organization has the opportunity to determine the cost of each write-off unit. *
There are two ways to form the cost of materials written off based on this method:
- the cost includes all costs associated with the purchase of materials;
- The cost includes only the contractual cost of materials. In this case, transportation and procurement and other costs associated with the acquisition of materials must be distributed in proportion to the cost of the materials written off.
This method shall be applied by the organization to materials for which one unit cannot be freely substituted for another. For example, an entity is required to use this method to account for precious metals, precious stones, radioactive substances, and other similar materials.
An example of calculating the cost of written-off materials using the method of valuation at the cost of each unit of inventory
FIFO method
With the FIFO method, materials written off for operation (production) are valued at the cost of the first batch (of those available in stock). Therefore, evaluate the materials written off first at the cost of the balance of materials at the beginning of the month, then from the first purchase, the second, etc. * Such rules are established by paragraph 76 of the Guidelines approved.
To apply this method, each newly received batch of homogeneous materials is reflected as an independent group, regardless of whether such materials are registered or not.
The FIFO method is beneficial to use in a situation of constant reduction in prices for materials. In this case, the cost of written-off materials will be the highest, and the cost of materials on the balance will be minimal.*
The calculation of the cost of materials written off for operation (production) can be made:
- weighted assessment method;
- simplified weighted assessment method;
- by the rolling valuation method.
With a weighted estimate at the end of the month, after the receipt and consumption of materials have been calculated, it is necessary to determine at what price each write-off occurred. This is done based on a literal understanding of the FIFO method, that is, materials are first written off from the balance at the beginning of the month, after its use - from the first arrival, second, etc.
With a simplified weighted assessment at the end of the month, you need to determine the cost of material resources in stock (in stock). The balance should include the last purchased materials. This means that the price of the leftover materials is determined by the cost of the last delivery, and if it is insufficient, by the penultimate one, etc. After the cost of the leftovers is determined, the cost of all written-off materials can be calculated using the formula:
This method allows you to quickly determine the cost of decommissioned materials and their balances with a large number of expenses in small batches within a month.
In rolling valuation, the cost of materials is determined before each write-off. This method is the most time-consuming for manual processing, especially in large organizations, but accounting automation partially removes this problem. The advantage of this method is that it allows you to determine the cost of decommissioned materials before the end of the month.
paragraph 78 and Appendix 1 by order of the Ministry of Finance of Russia dated December 28, 2001 No. 119n.
After determining the total cost of scrapped materials, determine the average cost per unit of materials:
It will be needed when generating postings for the write-off of materials in a certain amount (Appendix 1 to the Guidelines approved by Order of the Ministry of Finance of Russia dated December 28, 2001 No. 119n).
An example of calculating the cost of written-off materials using the FIFO method
Average cost valuation method
When using the valuation method at the average cost price, the cost of written-off materials is determined by the formula:
The advantage of this method is the stable price of issued materials, even if there are sharp fluctuations in purchase prices during the month.*
The cost of decommissioned materials can be calculated:
- weighted assessment method;
- by the rolling valuation method.
In a weighted valuation, the average price of scrapped materials is determined once at the end of the month.
In rolling valuation, the price of materials is determined before each write-off. In this case, only those deliveries that were capitalized at the time of writing off the materials are taken into account. This method is the most time-consuming for manual processing, especially in large organizations, but accounting automation partially removes this problem. The advantage of this method is that it allows you to determine the cost of decommissioned materials before the end of the month.
Such clarifications are contained in paragraph 78 and Appendix 1 to the Guidelines approved by Order of the Ministry of Finance of Russia dated December 28, 2001 No. 119n.
When writing off materials in a certain amount, form postings based on the average cost of a unit of materials (Appendix 1 to the Guidelines approved by Order of the Ministry of Finance of Russia dated December 28, 2001 No. 119n).
An example of calculating the cost of written-off materials using the average cost method
Sergei Razgulin,
Acting State Councilor of the Russian Federation, 3rd class
Since January 1, 2008, all references to the LIFO method have been excluded from the legal documents on accounting (Order of the Ministry of Finance of Russia dated March 26, 2007 No. 26n). Therefore, starting from this date, the LIFO method is not used in accounting. In tax accounting, it has been preserved (clause 8, article 254 of the Tax Code of the Russian Federation).
LIFO principle
The LIFO method is based on the assumption that during a certain period goods are sold in the reverse order of their acquisition (receipt). That is, the goods that are sold first are valued at the cost of the most recent acquisitions. This takes into account the value of the balance of goods at the beginning of the period. If the number of goods in the last batch is less than those sold, then for calculation, take the cost of goods from the penultimate batch, etc. *
Elena Popova,
State Advisor of the Tax Service of the Russian Federation of the 1st rank
03/15/2020 Attention! The document is out of date! New version of this document
Both in accounting and in tax accounting (both with DOS and with the simplified tax system), when raw materials and materials are released into production, when tools and equipment are put into operation, and when goods are sold, their value can be estimated using one of three methods. The selected method must be specified in the accounting policy. At the same time, one of the types of inventory (for example, raw materials) can be evaluated by one method, and another type of inventory (for example, goods) - by another (clause 16 PBU 5/01, clause 73 of the Methodology for accounting for inventory).
Method 1. At the cost of each unit of inventory (clauses 16, 17 PBU 5/01). With this method, the organization must ensure that each unit of inventory is accounted for. That is, when each inventory unit is retired from the warehouse, it must be known which particular inventory unit is being retired. Then, upon disposal of each unit of inventory, the cost of its acquisition is written off as expenses. In this way, in particular, precious stones and artistic values are taken into account.
Method 2. Based on the average cost of inventories (clauses 16, 18 PBU 5/01, Letter of the Ministry of Finance dated 09/08/2014 N 03-03-06/1/44996). To apply this method in analytical accounting, the inventory is divided into groups. For example, if an organization sells stationery, then analytical accounting can be organized by product group of varying degrees of detail, for example:
- or "handles";
- or "ballpoint pens", "gel pens" and "fountain pens".
The average cost of an inventory unit during release into production, transfer to operation or sale is calculated for each group of inventory according to the following formula:
The total cost of retired inventories is determined by the formula:
Such a calculation at the choice of the organization can be done (clause 78 of the Methodology for accounting for inventory):
- or upon the release of each unit (batch) of inventory (average moving estimate). In this case, to calculate the average cost of an inventory unit, the debit turnover on account 10 (41) and the number of inventory received by the organization are taken on the date of issue of each unit (batch) of inventory;
- or once at the end of the month for the entire number of retired MPZs (average estimate). Please note that in trading this method does not allow you to accurately assess the financial result from each sale until the end of the month.
Example. Evaluation of the goods sold by the average estimate
At the beginning of the month, the balance of carrots was 100 kg worth 1200 rubles. During the month, another 500 kg of carrots were purchased at a price of 10 rubles / kg, with a total cost of 5,000 rubles. (10 rub/kg x 500 kg). 550 kg of carrots were sold per month. The rest of the carrots at the end of the month - 50 kg (100 kg + 500 kg - 550 kg).
The average cost of 1 kg of sold carrots is 10.33 rubles / kg ((1200 rubles + 5000 rubles) / (100 kg + 500 kg)). The cost of the sold batch of carrots is 5681.5 rubles. (10.33 rubles/kg x 550 kg).
The cost of the balance of carrots at the end of the month is 516.5 rubles. (10.33 rubles/kg x 50 kg).
Method 3. According to the cost of the first in time acquisition of inventories (FIFO) (clauses 16, 19 PBU 5/01). To apply this method in analytical accounting, inventories are divided into groups in the same way as in method 2. Retiring inventories are valued at the cost of the earliest in terms of acquisition time. That is, first, the inventories are written off at the cost of acquiring the inventories available in the organization at the beginning of the month, then at the cost of the inventories, the first in terms of acquisition time from the beginning of the month, etc.
Example. Valuation of goods sold at the cost of the first in time of acquisition (FIFO)
At the beginning of the month, the balance of carrots was 100 kg at a price of 12 rubles/kg. During the month, another 500 kg of carrots were purchased at a price of 10 rubles/kg. 550 kg of carrots were sold per month. The rest of the carrots at the end of the month - 50 kg (100 kg + 500 kg - 550 kg).
The cost of sold carrots is 5700 rubles. (12 RUB/kg x 100 kg + 10 RUB/kg x (550 kg - 100 kg)).
The cost of the balance of carrots at the end of the month is 500 rubles. (10 rub/kg x 50 kg).
Regardless of the chosen method for assessing the inventory, their write-off is reflected in the posting
In accounting for goods accounted for by the sale value (including the trade margin), none of the listed methods is applied. Such goods are written off at their selling price.
More on the topic:
Disposal of inventories occurs when released into production, transferred for the organization's own needs, sold to a third party or liquidated as a result of any force majeure. The write-off of inventories, depending on the grounds for disposal, is documented, the form of which is approved by the regulations. Write-off of MPZ can be carried out:
- limit-fence card according to the approved form M-8 (issued in cases where limits (norms) are set for the consumption of materials;
- an invoice requirement in the form M-11 (in the event that the production process does not provide for limiting the consumption of material);
- waybill for leave to the party in the form M-15 (if materials are sold or disposed of for other reasons).
Currently, the legislation of the Russian Federation (namely, Regulation PBU 5/01) assesses the cost of inventories upon retirement in accounting can be performed in one of the three following ways:
- write-off of inventories at an average cost;
- write-off at the cost of each unit of inventory;
- according to the FIFO method (write-off at cost of the first acquired inventories).
Evaluation of inventories is carried out according to the methodology approved in the accounting policy of the organization. By choosing the method of valuation applied, an organization can control the financial result.
The write-off of inventories in tax accounting is carried out using the methods established by PBU 5/01. The cost of inventories is determined by:
- method for estimating the cost of an inventory unit;
- the method of estimating the average cost;
- the method of valuation at the cost of the first (FIFO) and the last (LIFO) by the time of acquisition of the inventory;
As we can see, the LIFO valuation method is used in tax accounting and is not used in accounting. This method was excluded from their accounting rules by order of the Ministry of Finance No. 26n dated March 26, 2007. This was done in order to unify domestic and international accounting standards. In tax accounting, four methods for estimating SDRs have been preserved.
When using the method of estimating the cost of each unit, the calculation includes inventories used in a special manner (for example, precious metals) and stocks that cannot be replaced by other inventory nomenclatures. The average cost is calculated based on the cost of all items of inventory and their balance at the beginning of the month, taking into account the stocks received during the reporting period. This method is the most convenient, and therefore common among manufacturing enterprises. The method of estimating FIFO can be called a conveyor one (since the inventory balances at the beginning of the reporting period are written off first, then the first batch, and so on in order). This method allows, in the conditions of falling prices for inventory, to minimize the valuation of reserves and, accordingly, profit, and when prices rise, to minimize the cost and increase the valuation of inventory and profit.
Using the LIFO method, the first inventories that come into production are valued at the cost of the latter. This method is the opposite of the FIFO method and allows you to maximize the estimate of inventory and profit when prices fall and minimize when prices rise.
Evaluation of inventory at disposal for the purposes of tax accounting by the above methods can be carried out:
- when determining the amount of expenses when writing off inventories (raw materials, materials used in production) in production activities, the provision of services, the performance of work (clause 8, article 254 of the Tax Code of the Russian Federation);
- when selling goods (clause 1, article 268 of the Tax Code of the Russian Federation);
- upon disposal of securities (clause 9, article 280 of the Tax Code of the Russian Federation).
Methods for estimating inventories
When stocks are released for production or otherwise disposed of, their assessment can be carried out in accordance with one of the following methods:
FIFO method;
LIFO method;
at an average cost;
at the cost of each unit.
The choice of a specific method depends mainly on what tasks the organization is solving in the field of finance, investment and taxation..
Method FIFO assumes that materials should be written off at the cost of the respective parties in the chronological order of their receipt. In the context of inflation, it causes an underestimation of the cost of resources allocated for production, an overestimation of their balance in the balance sheet, and, consequently, an overestimation of the financial result from the main activity and an improvement in liquidity indicators.
It is advisable to use the FIFO method for organizations that plan to make capital investments at their own expense and enjoy the appropriate income tax benefits.
Method LIFO involves the priority write-off of materials at the cost of the last batches. This method provides an overestimation of the value of the sold valuables, an underestimation of their balance at the end of the month, which means a decrease in profits and a deterioration in liquidity. It is recommended to use it for those organizations that have the goal of minimizing income tax.
Method average cost makes it possible to evaluate the supplied resources at the average purchase cost. It is moderate in terms of its impact on profit and liquidity compared to the methods discussed above.
Method cost of each unit based on an individual inventory estimate. This applies primarily to stocks used by the organization in a special way (precious metals, precious stones, etc.), and stocks that cannot normally replace each other. The possibility of using this method has been officially provided since 1999.
These methods can be applied in organizations subject to three introduced restrictions:
the chosen method is fixed in the accounting policy and is valid throughout the reporting year;
the method must be the same for the type (group) of materials;
not fall under established exceptions, namely materials that cannot substitute for each other. For them, there is only one method of evaluation - at the cost of each unit.
4. Indicators of the use of working capital.
The working capital of enterprises is in constant motion, they make a circuit, which has 3 stages:
I stage - This is the preparation of objects of labor. At this stage, the working capital received by the enterprise in the form of money is spent on the purchase of inventories.
II stage the circulation takes place in the sphere of production - material values enter production and finished products are created.
III stage - Sales of finished products. This stage ends with the receipt of cash for the products sold. Circulating assets return to their original form and begin the circuit again.
Appendix 1 to the Methodological Guidelines for Accounting for Inventories, approved by Order of the Ministry of Finance of the Russian Federation dated December 28, 2001 No. 119n
Calculations of the write-off of materials by the methods of average cost, FIFO
The first option is by determining the average cost (weighted estimate)
| No. p.p. | Content of operations | Quantity, kg | Purchase price, rub. | Amount, rub. |
| 1 | 2 | 3 | 4 | 5 |
| A. BACKGROUND | ||||
| 1 | Balance on January 1 | 1000 | 5 | 5000 |
| 2 | Received in January: | |||
| First batch | 6000 | 10 | 60000 | |
| Second batch | 4000 | 12 | 48000 | |
| Third Party | 20000 | 20 | 400000 | |
| Total received for January | 30000 | 508000 | ||
| Total with balance at the beginning of the month | 31000 | 513000 | ||
| 3 | Released in January: | |||
| - for production | 16000 | |||
| - for sale | 1000 | |||
| 5000 | ||||
| Total released | 22000 | |||
| 4 | Balance on February 1 | 9000 | ||
| B. WRITE-OFF OF MATERIAL BY AVERAGE COST METHOD | ||||
| 5 | Average price in January: 513000 / 31000 = 16.55 | |||
| 6 | Total written off in January (see paragraph 3) | |||
| 7 | Including: | |||
| - for production | 16000 | 16,55 | 264800 | |
| - for sale | 1000 | 16,55 | 16550 | |
| - service industries and farms | 5000 | 16,55 | 82750 | |
| Total | 22000 | 364100 | ||
| 8 | Balance on February 1 | 9000 | 16,54 | 148900 |
| C. FIFO DISPOSAL OF MATERIAL | ||||
| 9 | Spent in January | |||
| including: | ||||
| - at the price of the balance at the beginning of the month | 1000 | 5 | 5000 | |
| - at the price of the first batch | 6000 | 10 | 60000 | |
| - at the price of the second batch | 4000 | 12 | 48000 | |
| - at the price of the third party | 11000 | 20 | 220000 | |
| Total written off | 22000 | 15,14 | 333000 | |
| Including: | ||||
| - for production (taking into account rounding) | 16000 | 15,14 | 242160 | |
| - for sale | 1000 | 15,14 | 15140 | |
| - service industries and farms | 5000 | 15,14 | 75700 | |
| Total (including rounding) | 22000 | 15,14 | 333000 | |
| 10 | Balance on February 1 | 9000 | 20 | 180000 |
Notes.
1) In paragraph 9 of the calculation, the sequence of writing off the material according to the FIFO method is shown: first, the balance at the beginning of the month is written off, then receipts in the reporting month: first the first batch, then the second, etc., until the total amount to be written off in this month is reached (in the example 22000 kg). Of the receipts of the third batch of 20,000 kg, only 11,000 kg were taken - as much as is needed in order to end up with 22,000 kg.
2) Materials released in a given month (for production, sale, servicing industries and farms, and for other purposes) are written off in amounts determined on the basis of the average price, which is determined by dividing the total amount written off in a given month by the amount of material written off.
In our example, the average price for January was:
- according to the average cost method - 513000 / 31000 = 16.55 (clause 5);
- according to the FIFO method - 333000: 22000 kg \u003d 15 - 14 (clause 9, total);
The amounts actually written off have slight discrepancies compared to the estimated amounts due to rounding of the average monthly price.
3) The balance of material at the beginning of the next month is determined by the FIFO method (clause 10):
- gr. 3 - from the initial data (item 4);
- gr. 5 \u003d p. 1 + p. 2 (total) - p. 9 (total);
- gr. 4 = gr. 5 / gr. 3 (on the same point).
4) The cost of issued (written off) materials using the FIFO method can be determined in a simplified way, by calculation, when the cost of the material is first set, which is transferred to the next month, and the rest of the amount is written off in the reporting month. In our example, it looks like this:
The second option is by determining the price at the time of goods issue (moving price)
The method of writing off materials at average monthly prices provided for in the first variant may cause inconvenience in the practical application of this variant due to the fact that the price, as a rule, can be determined only at the end of the month, after the monthly turnover has been calculated.
The organization can apply the second option for valuing the material by determining the price based on the condition of this material at the time of issue, without waiting for the end of the month.
In this case, the recalculation of the average price of the material can be carried out based on the option chosen in the organization (average cost, FIFO) at the time (by measure) of each issue of the material. In this case, the calculation algorithm is similar to the procedure described in the first variant.
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In the course of economic activity, organizations buy, move from warehouse to warehouse, complete, process, sell various types of Inventory (inventory): goods, materials, finished products.
To understand the legally regulated purposes of accounting for inventories, you can get acquainted with the relevant RAS (Regulations on Accounting). Accounting for inventories is regulated by PBU "Accounting for inventories" (PBU 5/01), approved by order of the Ministry of Finance of the Russian Federation dated 09.06.01 No. 44n.
And we will consider the methods for assessing the MPZ briefly, from the point of view of practical logic. To simplify, consider the case of a trade enterprise with the simplest workflow. But the basic principles also apply to more complex workflows (for example, a manufacturing plant with an impressive processing cycle).
We believe that our company (Romashka LLC) sells groceries. Buys in bulk, sells in bulk. In the context of a sharp rise in the price of goods, a strict assessment of the cost of stocks is especially relevant in order to see the profitability of our activities as realistically as possible. When trading food products, special attention is required to take into account expiration dates, but we are discussing a different issue now, therefore, for simplicity, we will exclude this point from consideration.
Let's assume that at the beginning of the month there were no stocks of buckwheat in the warehouse, and during the month there were movements described in the table:
| operation number | Type of operation | Quantity (kg) | Price, rub.) | Purchase/sale price (rub.) |
| 1 | + Purchase | 50 | 20 | 1000 |
| 2 | + Purchase | 300 | 25 | 7500 |
| 3 | - Sale | 10 | 30 | 300 |
| 4 | + Purchase | 100 | 27 | 2700 |
| 5 | - Sale | 50 | 30 | 1500 |
| 6 | - Sale | 5 | 33 | 165 |
If we start to calculate the profitability of operations, the question arises, what is the cost value, each specific sale transaction, because we buy something at different prices.
The second less common question is what is the value of the balance of goods in warehouses (this question may arise, for example, if we want to take a loan from a bank, the bank, in order to assess our creditworthiness, will ask for a report on the value of inventory balances in warehouses). We made sure that the cost of goods during the sale and when evaluating the balances can be of interest to us from a practical point of view.
We proceed to the next paragraph - "How to calculate the cost of goods." There are several methods:
- FIFO(from English First In First Out - first in, first out)
- LIFO(from English LastIn First Out - last in, first out)
- According to the average.
LIFO, in general, is an unpopular method (in addition, it is prohibited by current legislation for use in accounting). Therefore, we compare only 2 methods "FIFO" and "Average". The philosophy of FIFO is that we always sell the most "stale" goods in the warehouse, and therefore the value of the goods sold is determined by the purchase price of the lots that are sold. And the “Average” philosophy is that we do not always know exactly which product from which batch of receipt we sell, and therefore it is more correct to calculate the average cost per unit, taking into account all batches stored in the warehouse.
MPZ may also differ. This leads to the fact that the actual cost of different batches of the same materials may be different. Often, when writing off materials for production, it is impossible to determine exactly which batch these materials are from, especially with a large range of materials. Therefore, the organization must choose and fix in the accounting policy the method of writing off inventories to production.
Paragraph 16 of PBU 5/01 and paragraph 73 of the Methodological Guidelines for Accounting for Inventories established the following methods for assessing inventories during release into production and other disposal:
at the cost of each unit;
at the average cost
· according to the FIFO method (according to the cost price of the first in time acquisition of materials);
· according to the LIFO method (at the cost price of the most recent acquisition of materials).
Considering the legally established methods for estimating written-off materials, it should be borne in mind that, in accordance with paragraph 78 of the Methodological Guidelines for accounting for inventories, the use of methods for average estimates of the actual cost of materials (at average cost, using the FIFO and LIFO method), released into production or written off for other purposes, can be carried out in the following ways:
Based on the average monthly actual cost (weighted estimate), which includes the quantity and cost of materials at the beginning of the month and all receipts for the month ();
By determining the actual cost of the material at the time of its issue (rolling valuation), while the calculation of the average valuation includes the quantity and cost of materials at the beginning of the month and all receipts until the moment of issue.
The use of a rolling estimate should be economically justified and provided with appropriate computer technology.
The option for calculating average estimates of the actual cost of materials should be disclosed in the accounting policy of the organization.
Along with the weighted average cost method, which calculates the average cost of all materials of a given type received in a given month, taking into account the incoming balance, a moving average cost estimate can be applied, when the average cost is recalculated for each moment of issue. In this case, the incoming balance should participate in the calculation, and only those batches that arrived before the corresponding issue of materials. If, when using the FIFO method, the cost of goods issued was calculated only at the end of the month, then when using the FIFO method according to the rolling valuation, the cost of goods issued can be calculated without waiting for the end of the month. After all, this method assumes that materials are released from the earliest batches that have already arrived at the time of the release of materials.
Similar to the FIFO method for standard and modified options, using the LIFO method in a rolling valuation allows you to determine the cost of goods issued without waiting for the end of the month.
The use of one of these methods for a group (type) of inventories is based on the assumption of the sequence of application of the accounting policy.
According to paragraph 6 of the Accounting Regulations "Accounting Policy of the Organization" PBU 1/98, approved by Order of the Ministry of Finance of the Russian Federation dated December 9, 1998 No. 60n, the assumption of a sequence in the application of accounting policies means that the organization adopted is applied sequentially from one reporting year to another.
It should be noted that for accounting purposes, an organization may use different write-off methods for different groups of inventories.
Paragraph 21 of PBU 5/01 establishes that for each group (type) of inventories during the reporting year, one assessment method is used.
Let's take a closer look at each of these methods.
4.1. Write-off of materials at the cost of each unit
The method of writing off materials at the cost of each unit is convenient for use in cases where the organization uses a small range of materials in production and it is easy to track which batch the materials are written off from, and their prices remain fairly stable over a long period. In this case, accounting is kept for each batch of materials separately, and materials are written off exactly at the prices at which they are accepted for accounting.
In addition, this method should be used to evaluate the following types of EMI:
materials that are used in a special manner - precious metals, precious stones, radioactive substances and other similar materials;
Inventories that cannot normally substitute for each other.
Paragraph 74 of the Methodological Guidelines for Accounting for Inventories, approved by Order of the Ministry of Finance of the Russian Federation dated December 28, 2001 No. 119n, proposes two options for writing off materials at the price of each unit:
1. Unit cost includes all costs associated with the acquisition of these inventories. This method is used when it is possible to accurately determine the amounts of acquisition costs that relate to different materials.
2. A simplified method whereby the cost of a unit includes only the cost of inventories at contract prices, while transportation and other costs associated with their acquisition are accounted for separately and written off in proportion to the cost of materials written off to production at contract prices. This method is used when it is impossible to determine exactly what share of the transportation and procurement costs relates to each specific batch of purchased materials.
Example.
At the beginning of the month, the organization had leftover paint in the amount of 120 kilograms in the amount of 3,600 rubles at the actual cost.
Within a month, two batches of paint were purchased:
The first batch - 150 kilograms, the cost of the batch - 3,200 rubles
The second batch - 200 kilograms, the cost of the batch - 5,600 rubles
Transportation costs amounted to 1000 rubles
Accounting for materials is carried out with the inclusion of transport and procurement costs in the actual cost. For ease of calculation, all amounts are given without VAT.
The actual cost of paint is:
Balance at the beginning of the month: 3,600 / 120 = 30-00 rubles
First batch: (3,200 + 1,000) / 150 = 28-00 rubles per 1 kilogram
Second batch: (5,600 + 1,000) / 200 = 33-00 rubles per 1 kilogram
During the month spent:
100 kilograms of paint from the balance at the beginning of the month
90 kilograms of paint from the first batch
120 kilograms of paint from the second batch
The cost of the used paint is:
100 x 30-00 + 90 x 28-00 + 120 x 33-00 \u003d 9,480 rubles
The main advantage of the inventory write-off method at the cost of each unit is that all materials are written off at their real cost without any deviations. However, this method is applicable only in cases where the organization uses a relatively small range of materials, when it is possible to determine exactly which materials are written off.
In cases where it is impossible to accurately track the materials from which particular batch were released into production, it is advisable to use one of the three methods described below.
Write-off of materials at average cost
In accordance with paragraph 18 of PBU 5/01, the method of writing off inventories at the average cost is as follows. For each type of material, the average unit cost is determined as the quotient of the total cost of these materials (the sum of the cost of materials at the beginning of the month and those received during the month) by the quantity of these materials (the sum of the balance at the beginning of the month and those received during the month).
The cost of materials written off to production is determined by multiplying their quantity by the average cost. The cost of the balance at the end of the month is determined by multiplying the amount of material on the balance by the average cost price. Thus, the average unit cost of materials can vary from month to month. The balance of inventory accounting accounts is reflected at the average cost.
Example.
At the beginning of the month, the rest of the fabric in the organization is 1,500 m, the average cost is 95 rubles per 1 m. Within a month, the fabric arrived:
1st batch: 1,000m at a price of 89-50 rubles per 1m;
2nd batch: 500m at a price of 100 rubles per 1m;
3rd batch: 1,200m at a price of 80 rubles per 1m.
Within a month, 3,500 m of fabric were spent on the production.
The average cost of fabric is:
(1500 x 95 + 1000 x 89-50 + 500 x 100 + 1200 x 80) / (1500 + 1000 + 500 + 1200) = 90 rubles per 1m.
The cost of the fabric written off for production is: 3,500 x 90-00 = 315,000 rubles.
The rest of the fabric at the end of the month: (1,500 + 1,000 + 500 + 1,200) - 3,500 = 700 m.
The cost of the rest of the fabric at the end of the month: 700 x 90-00 = 63,000 rubles
Write-off of materials using the FIFO method
The FIFO method (from the English First In First Out) is also called the pipeline model.
In accordance with paragraph 19 of PBU 5/01, this method is based on the assumption that materials are written off for production in the order in which they were purchased. Materials from subsequent batches are not written off until the previous one is completely used up. With this method, materials put into production are valued at the actual cost of materials, the first by the time of purchase, and the balance of materials at the end of the month is valued at the cost of the last by the time of acquisition.
In the event that the first batches purchased in time are cheaper and the subsequent ones are more expensive, the application of the FIFO method leads to the following result - the materials are written off to production at a lower cost, respectively, the cost of production is lower and the profit is higher.
If the prices of materials tend to decrease, then, on the contrary, if the FIFO method is used, the profit will decrease.
The literature suggests two methods for determining the cost of materials written off to production using the FIFO method.
1. First, materials are written off at the cost of the first purchased lot, if the amount of written-off materials is more than this lot, the second lot is written off, and so on. The balance of materials is determined by subtracting the cost of written-off materials from the total cost of materials received during the month (taking into account the balance at the beginning of the month).
2. The balance of materials at the end of the month is determined at the price of the last ones at the time of purchase. The cost of materials written off to production is determined by subtracting the value obtained from the total cost of materials received during the month (taking into account the balance at the beginning of the month).
Example.
During the month received:
The total cost of the received paint is:
1 option
In total, 270 cans of paint were written off, and first the balance at the beginning of the month (100 cans) was completely written off, then the first batch (120 cans) was written off. Since the total quantity is greater, the remaining quantity is written off from the second batch 270 - (100 + 120) = 50 cans
100 x 35-00 + 120 x 40-00 + 50 x 45-00 \u003d 10,550-00 rubles
(3 500-00 + 13 400-00) - 10 550-00 = 6 350-00 rubles
With this option, it is necessary to determine exactly which batches of materials make up the balance at the end of the month, since they will be written off first in the next month.
The rest are:
From the second batch: 80 - 50 \u003d 30 cans in the amount of 30 x 45-00 \u003d 1,350-00 rubles;
The third batch remains at the end of the month in full: 100 x 50-00 = 5,000-00 rubles
Option 2
The balance at the end of the month is 130 cans, and the third batch (100 cans) is listed in full on the balance, since this is not enough, 30 cans from the second batch are also included in the balance.
100 x 50-00 + 30 x 45-00 = 6,350-00 rubles
The cost of the written-off paint is:
(3 500-00 + 13 400-00) – 6 350-00 = 10 550-00.
The average cost of one can of discarded paint is:
10 550-00 / 270 = 39-07 rubles
From the above examples, it can be seen that the cost of materials written off and the balance are the same when using both options. In the second option, it is enough to accurately determine which batches of materials make up the balance in the warehouse, and the cost of written-off materials is determined by calculation without necessarily attributing to a specific batch, while in the first option, it is necessary to determine exactly which batches the materials are written off and remain at the end month. This option becomes very time-consuming if material purchases are made quite often during the month.
Write-off of materials using the LIFO method
The LIFO method (from the English Last In First Out) is also called the barrel model.
According to paragraph 20 of PBU 5/01, this method is based on the assumption that materials are written off for production in the reverse order in which they were purchased. Materials from previously purchased batches are not written off until the last one is used up. Under the LIFO method, materials put into production are valued at the actual cost of materials last acquired, and the balance of materials at the end of the month is valued at the cost of materials first acquired.
In the event that the first purchase batches are cheaper and the subsequent ones are more expensive, the use of the LIFO method leads to the fact that the materials are written off to production at a higher cost, respectively, the cost of production is higher and the profit is lower.
If the prices of materials tend to decrease, then, on the contrary, if the LIFO method is used, the amount of income tax will decrease.
In the literature, two methods have been proposed for determining the cost of materials written off to production using the LIFO method.
1. First, materials are written off at the cost of the last purchased batch, if the amount of written-off materials is more than this batch, the previous one is written off, and so on. The balance of materials is determined by subtracting the cost of written-off materials from the total cost of materials received during the month (taking into account the balance at the beginning of the month).
2. The balance of materials at the end of the month is determined at the price of the first at the time of purchase. The cost of materials written off to production is determined by subtracting the value obtained from the total cost of materials received during the month (taking into account the balance at the beginning of the month).
Example.
Let's use the conditions of the previous example.
At the beginning of the month, the remainder of the paint was 100 cans at a price of 35-00 rubles per can.
The balance at the beginning of the month is: 100 x 35-00 = 3,500 rubles
During the month received:
1 batch: 120 cans at a price of 40-00 rubles per can;
2 batch: 80 cans at a price of 45-00 rubles per can;
3 party: 100 cans at a price of 50-00 rubles per can.
The total cost of the received paint:
120 x 40-00 + 80 x 45-00 + 100 x 50-00 = 13,400-00 rubles
During the month, 270 cans of paint were written off for production, the balance at the end of the month is 130 cans.
1 option
In total, 270 cans of paint were written off, and first the third batch (100 cans) was completely written off, then the second batch (80 cans) was written off. Since the total quantity is higher, the remaining quantity is written off from the first batch: 270 - (100 + 80) = 90 cans
Paint cost:
100 x 50-00 + 80 x 45-00 + 90 x 40-00 = 12,200-00 rubles
The average cost of one can of discarded paint is:
The cost of the remaining paint is:
(3 500-00 + 13 400-00) - 12 200-00 = 4 700-00 rubles
With this option, it is necessary to accurately determine which materials from which batches make up the balance at the end of the month, since these data are needed for the correct assignment of materials to specific batches when writing off in subsequent months.
The rest are:
From the first batch: 120 - 90 \u003d 30 cans in the amount of 30 x 40-00 \u003d 1,200-00 rubles;
The paint that made up the balance at the beginning of the month is fully listed on the balance at the end of the month: 100 x 35-00 = 3,500-00 rubles
Option 2
The balance at the end of the month is 130 cans, and the paint listed in the balance at the beginning of the month (100 cans) remains unused and at the end of the month, since this is not enough, 30 cans from the first batch are also included in the balance.
The balance at the end of the month is:
100 x 35-00 + 30 x 40-00 = 4,700-00 rubles
The cost of the written-off paint is:
(3,500-00 + 13,400-00) - 4,700-00 = 12,200-00 rubles
The average cost of one can of discarded paint:
12 200-00 / 270 = 45-19 rubles
Thus, under the LIFO method, the cost of written-off materials and the balance are also the same when using both options. In the second option, it is enough to accurately determine which batches of materials make up the balance in the warehouse, and the cost of the written-off materials is determined by calculation without necessarily attributing to a specific batch, while in the first option, it is necessary to determine exactly which batches the materials are written off from and remain at the end month. With frequent purchases of materials, the first option is inconvenient due to the complexity of the calculations.
Comparison of different write-off methods
When using the inventory write-off methods - at average cost, FIFO or LIFO - the calculated values \u200b\u200bof the cost of written-off materials and balances at the end of the period differ from each other. This, in turn, affects the cost of production, the amount of profit and the amount of property tax. Therefore, when choosing a write-off method, you need to determine which criteria are the most important.
Example.
At the beginning of the month, the balance of materials was 300 units at a price of 110-00 rubles per unit for a total amount of: 300 x 110-00 = 33,000-00 rubles
During the month received:
1 batch: 500 units at a price of 130-00 rubles per unit for a total amount of 65,000-00 rubles;
2nd batch: 600 units at a price of 170-00 rubles per unit for a total amount of 102,000-00 rubles;
3rd batch: 200 units at a price of 180-00 rubles per unit for a total amount of 36,000-00 rubles
Total cost of materials:
33,000-00 + 65,000-00 + 102,000-00 + 36,000-00 = 236,000-00 rubles
A) The average cost method.
The average unit cost is: 236,000-00 / 1,600 = 147-50 rubles
The cost of written-off materials is: 1,200 x 147-50 \u003d 177,000-00 rubles
The balance at the end of the month is: 400 x 147-50 = 59,000-00 rubles
B) FIFO Method
Balance at the end of the month: 200 x 180-00 + 200 x 170-00 = 70,000-00 rubles
Cost of written-off materials: 236,000-00 - 70,000-00 = 166,000-00 rubles
The average cost of a unit of materials written off: 166,000-00 / 1,200 = 138-33 rubles
The average cost of a unit of materials on the balance: 70,000-00 / 400 = 175-00 rubles
C) LIFO method
Balance at the end of the month: 300 x 110-00 + 100 x 130-00 = 46,000-00 rubles
Cost of written-off materials: 236,000-00 - 46,000-00 = 190,000-00 rubles
The average cost of a unit of materials written off: 190,000-00 / 1,200 = 158-33 rubles
The average cost of a unit of materials on the balance: 46,000-00 / 400 = 115-00 rubles
| Indicator | Average cost method | FIFO method | LIFO method |
| 177 000-00 | 166 000-00 | 190 000-00 | |
| 147-50 | 138-33 | 158-33 | |
| Balance at the end of the month | 59 000-00 | 70 000-00 | 46 000-00 |
| 147-50 | 175-00 | 115-00 |
Thus, we see that under the condition of a constant increase in prices for materials using the FIFO method, the cost of written-off materials is the lowest, and the cost of materials on the balance is maximum. In this case, the cost of production is lower and, accordingly, the profit from the sale of products is higher.
When using the LIFO method, the cost of decommissioned materials is maximum, while the cost of production increases and, accordingly, profit decreases.
When using the average cost write-off method, the cost of scrapped materials, and therefore the cost of production, is less influenced by price fluctuations and can be kept at a fairly stable level.
From this we can draw the following conclusion: the LIFO method is convenient for minimizing income tax. The FIFO method for these purposes is the most disadvantageous, since in this case taxes increase. However, if the organization aims to maximize profits and, consequently, increase the amount of dividends paid, it is more convenient to use the FIFO method. In addition, this method provides more reliable data on the cost of materials written off and the cost of production, since in practice materials are usually written off in the order of receipt.
These conclusions hold true if material prices rise. If the prices of materials tend to decrease, then the FIFO method becomes more convenient for minimizing taxes, and the LIFO method is the least suitable for this purpose. The average cost method still gives average results.
To demonstrate the advantages and disadvantages of various inventory write-off methods, we considered options in which material prices are either constantly rising or constantly decreasing. In practice, the prices of materials can both increase and decrease. In this case, the differences between the methods are not so obvious.
Example.
Let's change the conditions of the previous example.
At the beginning of the month, the balance of materials was 300 units at a price of 110-00 rubles per unit for a total amount of 33,000-00 rubles
During the month received:
1 batch: 500 units at a price of 170-00 rubles per unit for a total amount of 85,000-00 rubles;
2nd batch: 600 units at a price of 180-00 rubles per unit for a total amount of 108,000-00 rubles;
3rd batch: 200 units at a price of 130-00 rubles per unit for a total amount of 26,000-00 rubles
Total number of materials (balance at the beginning of the month and received materials):
300 + 500 + 600 + 200 = 1,600 units.
Total cost of materials:
33,000-00 + 85,000-00 + 108,000-00 + 26,000-00 = 252,000-00 rubles
During the month, 1,200 units were used.
Balance at the end of the month: 1,600 - 1,200 = 400 units.
A) The average cost method.
The average unit cost is: 252,000-00 / 1,600 = 157-50 rubles
The cost of written-off materials is: 1,200 x 157-50 \u003d 189,000-00 rubles
The balance at the end of the month is: 400 x 157-50 = 63,000-00 rubles
B) FIFO Method
Balance at the end of the month: 200 x 130-00 + 200 x 180-00 = 62,000-00 rubles
Cost of written-off materials: 252,000-00 - 62,000-00 = 190,000-00 rubles
Average unit cost of scrapped materials:
190,000-00 / 1,200 = 158-33 rubles
The average cost of a unit of materials on the balance: 62,000-00 / 400 = 155-00 rubles
C) LIFO method
Balance at the end of the month: 300 x 110-00 + 100 x 170-00 = 50,000-00 rubles
Cost of written-off materials: 252,000-00 - 50,000-00 = 202,000-00 rubles
The average cost of a unit of materials written off: 202,000-00 / 1,200 = 168-33 rubles
The average cost of a unit of materials on the balance: 50,000-00 / 400 \u003d 125-00 rubles
Let's combine the results in a table.
| Indicator | Average cost method | FIFO method | LIFO method |
| Cost of scrapped materials | 189 000-00 | 190 000-00 | 202 000-00 |
| Average unit cost of scrapped materials | 157-50 | 158-33 | 168-33 |
| Balance at the end of the month | 63 000-00 | 62 000-00 | 50 000-00 |
| Average unit cost of materials on the balance | 157-50 | 155-00 | 125-00 |
As you can see, under the conditions of this example, all three methods give similar results, and when using the average cost and FIFO methods, the values obtained are almost the same. Depending on price dynamics, there may be situations where the average cost and LIFO methods, or FIFO and LIFO, or all three methods will lead to the same results.
You can find more information about the accounting and tax accounting of MPZ in the book of CJSC "BKR Intercom-Audit" "Materials, semi-finished products, overalls, special equipment"
The method of estimating inventories at unit cost involves keeping a piece record. When transferring inventories to production using this method, their actual cost is included in the costs.
The Ministry of Finance of Russia recommends applying this method of valuation for reserves that cannot normally replace each other, as well as for inventories used by the organization in a special manner (paragraph 17 of PBU 5/01). These financiers include precious metals, precious stones, etc.
It is convenient to write off piece by piece and expensive goods that are sold in a single copy or in small batches. For example, cars, art, jewelry. Practical accounting", N 7, 8, July, August 2007
The organization is engaged in the sale of expensive cars.
When selling a car, its actual cost is included in the costs. Since the organization's accounting policy provides for this group of goods, the use of the valuation method is at the cost of an inventory unit.
The write-off of inventories at the cost of each unit allows you to obtain accurate information about the cost of assets sold. Reporting indicators generated using it are the most realistic, since they are obtained without any averaging or deviations. Accounting data with this method of assessing the inventory can be used directly for management accounting.
The method of estimating the cost of a unit of reserves can also be used in tax accounting when determining the amount of material costs when writing off raw materials and materials used in the production (manufacturing) of goods (performance of work, provision of services) and the cost of acquiring purchased goods when they are sold.
Estimation method: by average cost
When writing off (dispensing) materials estimated by the organization at the average cost, the latter is determined for each group (type) of stocks as a quotient of dividing the total cost of the group (type) of stocks by their quantity, consisting, respectively, of the cost and quantity of the balance at the beginning of the month and received stocks this month Order of the Ministry of Finance of the Russian Federation dated December 28, 2001 N 119n (as amended on March 26, 2007) "On approval of the Guidelines for the accounting of inventories" .. Thus, to determine the average cost for each group (type ) inventory when written off at average cost, the following formula is used:
Sav \u003d (Comp + Spost) : (Cost + Kpost),
where Cav is the average cost of MPZ;
Comp and Spost - the cost of the balance of the inventory at the beginning of the month and those received for the month;
Cost and Kpost - the number of inventory units remaining at the beginning of the month and capitalized for the month.
The product of the value of the average cost obtained in this way for each group (type) of stocks by the number of inventories written off will give the value included in the costs. Practical accounting", N 7, 8, July, August 2007
As of July 1, the balance of the inventory is 350 units, their actual cost is 88,970 rubles. The balances were formed from the receipts of five batches of stocks in the following sequence. The first batch received 50 units. at the actual cost of 245 rubles / unit, in the second - 70 units. at 251 rubles / unit, in the third - 80 units. 254 rubles / unit, in the fourth - 80 units. 257 rubles / unit, in the fifth - 70 units. at 261 rubles / unit.
During July, 800 units of MPZ were purchased in the amount of 222,120 rubles. Stocks arrived in nine batches (hereinafter they are numbered from six to fourteen). The dates of their receipt, the unit cost and the actual cost of each batch are given in table No. 1:
After one working day (July 2, 4, 6, 10, 12, 16, etc.), 80 units of MPZ are transferred to production. In total, 11 transfers were made in a month.
(In this example and in all of the following:
when multiplying, there may be a difference in the values of kopecks. This is explained by the fact that the calculations were carried out with an accuracy of a tenth of it; it is believed that when the inventory is received and retired on the same day, they are first withdrawn, and then a new batch is credited.)
The total quantity and total value of inventories are defined as the sum of the quantity and value of inventories at the beginning of the month and received during the month. These values will be respectively 1150 units. (350 + 800) and 311,090 rubles. (88 970 + 222 120). Based on this, the average unit cost is 270.51 rubles / unit. (311,090 rubles: 1150 units). Since 11 transfers of inventory were made in July, the total number of retired stocks is 880 units. (80 units x 11). Therefore, the cost of the inventory transferred to production during the month, included in the costs of ordinary activities, will amount to 238,051.48 rubles. (270.51 rubles / unit x 880 units).
The cost of the remaining 270 units. (1150 - 880) Inventory at the end of the month (at the beginning of August) - 73,038.52 rubles. (270.51 rubles / unit x 270 units).
The method of estimating the average cost is the most common. With a large assortment of used inventories (sold goods) and subject to their purchase in small batches, it is quite difficult to track which batch each transferred (sold) unit of such an inventory belongs to. The same method allows you to get rid of the required "tracking".
In the example, the average cost of an inventory unit was determined based on the average monthly actual cost, i.e. a weighted estimate was used. The above-mentioned Guidelines also allow the use of another calculation option, when the actual cost of inventories is determined at the time of their release. In this case, the calculation of the average estimate includes the quantity and cost of inventories at the beginning of the month and all receipts until the moment of vacation. Since in this case the actual cost of an inventory unit is determined each time at the time of their disposal, in other words, the calculation operation seems to “slide” from one retiring batch of inventory to the next, this option was called a rolling estimate. Practical accounting", N 7, 8, July, August 2007
