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Tally inventory valuation methods

Tally permits different valuation methods for different items, that is, it does not restrict you
to one method of valuation only for all items. The selection of an appropriate costing
method is essential in order to select an appropriate stock valuation method. This helps
in knowing the value of the stock both on cost basis and sale basis, which shows the
approximate profit margins lying in the inventory.

Activating Stock Valuation

1. From the Gateway of Tally -> Inventory Info ->Stock Item Creation Screen.
2. Press F12:Configure. Advanced Entries for Inventory should be activated.
3. Return to the Stock Item screen.
4. Under behaviour, activate costing and market valuation methods by entering values in
Units and Set Std Rates.

The different costing methods are:

• Average Cost
• At Zero Cost
• First In First Out (FIFO)
• Last Purchase Cost
• LIFO Annual (Last In First Out Annual)
• LIFO Perpetual (Last In First Out Perpetual)
• Monthly Avg. Cost
• Standard Cost

The different stock / market valuation methods are:

• At Zero Price
• Average Price
• Last Sale Price
• Standard Price

Average Cost / Price:

Tally recalculates the average value after each purchase or sale for the whole year.

At Zero Cost:

The stock is valued at zero cost.

FIFO (First In First Out):

Tally assumes the sale of the oldest goods first.


Last Purchase Cost / Sale Price:

The stock is valued at the latest price.

LIFO Annual (Last In First Out Annual):

Tally assumes the sale of the newest goods first taking into account the current financial year.

LIFO Perpetual (Last In First Out Perpetual):

As above, but the last purchase price continues from the previous financial year.

Monthly Avg. Cost:

Tally recalculates the average value after each purchase or sale for the whole month.

Standard Cost / Price:

A pre-determined value that you have entered earlier during the stock item creation.

Advanced Inventory features

Tally also provides the facilities for:

• Ignoring difference in stock due to physical counting.


• Ignoring negative balances.
• Treating all sales as new manufacture.
• Treating all purchases as consumed.
• Treating all rejections inward as scrap.
o Depending on the requirement, select YES or NO.
• Ignore difference Due to physical counting.
o You are allowed to record the physical stock as counted, by way of a
physical stock voucher. There is, usually, a difference between physical
counted stock and that appearing in the records. If you wish to ignore the
difference and continue using the stock as per books, select yes. It is,
however, advisable not ignore the difference.
• Ignoring negative balances.
o In case of negative balance for stock items in stock reports this option can
be selected. Select as required.
• Treating all sales as new manufacture.
o This is one way to avoid negative balances in the stock records. if you wish
to avoid the need to pass entries for manufacture or goods in and can be
automatically done when goods are sold.
• Treating all purchases as consumed.
o Issues are automatically raised for all goods purchased, if this is selected.
you do not wish to keep track of issues for this item.
• Treating all rejections inward as scrap.
o If you do not want rejected goods coming in to be taken back into stock,
select Yes. Otherwise , rejected goods received, though recorded
separately through a Rejection note, will be taken back into stock.