Table of Contents
Definition of the Hifo process
The Hifo method is a consumption sequence method that is used to simplify the assessment. It can be used to identify the acquisition cost or. Manufacturing costs similar items of inventory are used. It is assumed that the goods purchased at the highest prices are consumed first (highest in - first out).
Meaning of the Hifo method (highest in - first out)
The Hifo method is only important if the price trend varies. It leads to an extremely careful accounting of inventory assets. A distinction must be made between:
permanent Hifo process
The permanent Hifo procedure, in which all incoming and outgoing items of a financial year are continuously recorded and the next outgoing item is evaluated according to the assumed sequence of consumption. This procedure presupposes a stock accounting in terms of value and quantity.
Period Hifo method
The period Hifo method, which is the more practicable method based on the Lifo method. In this case, only the additions for the year need to be recorded separately at the respective quantities and prices or production costs.
At the end of the year, consumption is deducted from the most expensive additions, but not from the initial inventory, unless the additions are insufficient.