Highest-In-First-Out Method (HIFO)

16/10/2022 0 By indiafreenotes

Highest-In First-Out (HIFO) is a type of stock distribution and valuation method. The HIFO method follows the concept that stock or inventory with the greatest purchasing costs is first to be sold, used, or removed from the stock or inventory count. The use of HIFO is not recognized by GAAP (Generally Accepted Accounting Principles) and is hardly used in accounting.

This method is based on the assumption that closing stock should always remain at the minimum value, so materials with higher value are issued first and get exhausted at the earliest. But this method is not popular as it always undervalues the stock which amounts to creating secret reserves. This method may be used in case of cost plus contracts or monopoly products.