Inventory valuation practices and reporting: Nigerian textile industry experience

Abstract

This study examined the inventory practice and reporting in the Nigeria textile industry in order to ascertain the superiority between first-in first-out (FIFO) and weighted-average-price (WAP) valuation methods. Inventory represents a large (if not largest) portion of assets in manufacturing firms that makes up an important part of the balance sheet. Valuation of inventories is as much a theoretical problem as a practical problem. In order for a valuation of inventory to be correct, the quantity on hand needs to be accurate. The FIFO and WAP inventory methods are commonly used including textile industry. Questionnaire was used in collecting data from the respondents. Descriptive method of statistical data analysis is used to analyze the data collected. The study revealed among others that FIFO method gives realistic cost of closing stock as such more superior to WAP method of stock valuation in Textile industry in Nigeria. Also FIFO method is simply to understand and apply than WAP method which is difficult to operate, hence it is superior to WAP and therefore preferred to other methods. Based on the findings the study recommends that for consistency and uniformity all firms within the Industry should value and report their inventory using FIFO method, and also for equity and fairness on tax issues to both the firms and the Government, FIFO method should be use for the Nigerian Textiles Industry, because it matches revenue against the initial cost of inventory and therefore, does not over-state or under-state profit of the firm.