Stock Valuation Methods in Tally Prime

1. Concept of Stock Valuation

Stock valuation is the process of determining the monetary value of inventory remaining with a business at the end of an accounting period.

The value assigned to closing stock affects the Balance Sheet, Profit & Loss Account, Cost of Goods Sold (COGS) and overall profitability of the business.

      Example:
      Suppose a business has 100 units of a product remaining at the end of the
      year. If each unit is valued at ₹50, the closing stock value is:
      
      100 × ₹50 = ₹5,000

Tally Prime supports different inventory valuation methods so that a business can select an appropriate method according to its accounting requirements.

2. Stock Valuation Methods in Tally Prime

Method	Meaning	Example
FIFO (First In First Out)	The oldest available stock is assumed to be issued or sold first.	100 units purchased @ ₹10 and another 100 units @ ₹12. If 100 units are issued, the issue is valued at: 100 × ₹10 = ₹1,000.
LIFO (Last In First Out)	The latest stock purchased is assumed to be issued first.	100 units @ ₹10 followed by 100 units @ ₹12. If 100 units are issued, the issue is valued at: 100 × ₹12 = ₹1,200.
Average Cost	Stock is valued using the average cost of available purchases.	100 units @ ₹10 and 100 units @ ₹12: Average Cost = [(100 × ₹10) + (100 × ₹12)] ÷ 200 = ₹11 per unit
Standard Cost	Stock is valued using a pre-determined standard cost.	If the standard cost is fixed at ₹11 per unit, stock is valued at ₹11 per unit, irrespective of the actual purchase cost.
Standard Price	A pre-defined standard selling price is assigned to the item.	If the standard price is ₹15 per unit, the item is considered at the specified standard price for the relevant reporting purpose.
Monthly Average Cost	The average cost is calculated for the relevant month.	Useful when purchase prices change frequently during different months.
At Cost / Market Price (Whichever is Lower)	Inventory is valued at the lower of its cost and market value.	Cost = ₹12 and Market Price = ₹11. Valuation = ₹11 per unit.

Tally Tip: Stock valuation can be configured according to the requirements of the stock item and the relevant inventory configuration. Always verify the valuation method and accounting treatment being used in your particular Tally Prime setup.

Quick Comparison: FIFO, LIFO & Average Cost

Purchases:
100 units @ ₹10
100 units @ ₹12

Issue: 100 units

Method	Issue Rate	Issue Value	Remaining Stock
FIFO	₹10	₹1,000	100 units @ ₹12
LIFO	₹12	₹1,200	100 units @ ₹10
Average Cost	₹11	₹1,100	100 units @ ₹11*

*The exact treatment and available valuation methods should be checked against the configuration/version being used in Tally Prime.

3. Sub-Stock Groups

Sub-stock groups allow inventory items to be arranged under a main stock group in a hierarchical structure.

Example

Electronics

Mobiles
Laptops
Televisions

Here, Electronics is the main stock group, while Mobiles and Laptops are sub-groups.

      Why use sub-groups?
      Provides a clear hierarchical structure.
Makes inventory reports easier to understand.
Helps analyse stock by product type.
Makes large inventories easier to manage.

    

4. Stock Categories

A stock category provides an independent classification of stock items. Unlike stock groups, categories can be used to classify items across different groups.

Example

Stock Group	Item	Stock Category
Mobiles	Premium Phone A	Premium
Mobiles	Budget Phone B	Budget
Laptops	Premium Laptop A	Premium
Laptops	Budget Laptop B	Budget

This allows management to analyse all Premium products together even though they belong to different stock groups.

Best use: Stock categories are particularly useful for cross-analysis, such as comparing sales of Premium products across mobiles, laptops and other product groups.

5. Batch & Expiry Details

Batch tracking is useful when the same item is purchased or manufactured in different batches. It is especially important for industries where products have manufacturing and expiry dates.

Commonly Used For

Pharmaceutical products
Food products
FMCG products
Cosmetics
Other products with expiry dates

Example

Item	Batch No.	Mfg. Date	Expiry Date	Opening Qty.	Sold	Balance
Medicine A	M001	01-Aug-2026	31-Jul-2027	100	30	70

      Batch balance:
      
      Opening Quantity − Sold Quantity
      
      100 − 30 = 70 units remaining

Tally Prime can provide batch-wise information and help users identify stock associated with particular batches and expiry dates when the relevant inventory features are enabled.

6. Physical Stock Verification

Physical stock verification is the process of comparing the quantity recorded in the books with the quantity physically available in the warehouse or store.

Example

Particulars	Quantity
Book Stock	200 units
Physical Count	195 units
Difference	5 units shortage

Adjustment: The physical stock quantity is 195 units, while the books show 200 units. Therefore, the stock records need to be adjusted to reflect the actual physical quantity, subject to the company’s accounting controls.

In Tally Prime, the relevant voucher for recording a physical stock count is the Physical Stock voucher.

📝 Practice Questions

Question 1: FIFO vs LIFO

A business makes the following purchases:

100 units @ ₹10
100 units @ ₹12

The business issues 100 units. Calculate the issue value under:

FIFO
LIFO

Answer:
FIFO = 100 × ₹10 = ₹1,000
LIFO = 100 × ₹12 = ₹1,200

Question 2: Average Cost

A business purchases:

50 units @ ₹20
150 units @ ₹25

If 100 units are issued, calculate the average cost per unit and the value of the issue.

Total Cost = (50 × ₹20) + (150 × ₹25) = ₹1,000 + ₹3,750 = ₹4,750 Total Quantity = 50 + 150 = 200 units Average Cost = ₹4,750 ÷ 200 = ₹23.75 per unit Issue Value = 100 × ₹23.75 = ₹2,375

Answer: Average Cost = ₹23.75 per unit; Issue Value = ₹2,375.

Question 3: Sub-Stock Groups

Create the following stock group structure:

Electronics

Mobiles
Laptops

Record the following purchases:

20 Mobiles
10 Laptops

Generate a report showing stock under the main group and each sub-group.

Expected Structure:
Electronics → Mobiles → 20 units
Electronics → Laptops → 10 units

Question 4: Stock Categories

Create two stock categories:

Premium
Budget

Assign products belonging to different stock groups to these categories.

Record sales and generate a category-wise summary to compare the performance of Premium and Budget products.

Objective: Learn how categories can provide cross-analysis independently of stock groups.

Question 5: Batch & Expiry

Create an item called Medicine A with:

Batch No.	Mfg. Date	Expiry Date	Quantity
M001	01-Aug-2026	31-Jul-2027	100

Sell 30 units from batch M001 and determine the remaining quantity.

Balance = 100 − 30 = 70 units

Answer: Batch M001 should have a balance of 70 units, subject to the batch allocation used in the transaction.

Question 6: Physical Stock Verification

The book stock of Item B is 200 units. During physical verification, only 195 units are found.

Record the Physical Stock transaction and determine the adjustment.

Book Stock = 200 units Physical Stock = 195 units Difference = 195 − 200 = −5 units

Answer: There is a shortage of 5 units. The physical stock quantity becomes 195 units, with the 5-unit difference reflected through the physical-stock adjustment process.

📌 Quick Revision

Topic	Key Point
Stock Valuation	Determines the monetary value of inventory.
FIFO	Oldest stock is considered issued first.
LIFO	Latest stock is considered issued first.
Average Cost	Uses the average cost of available inventory.
Sub-Stock Groups	Provide hierarchical classification under a main stock group.
Stock Categories	Allow independent classification across different stock groups.
Batch Details	Track batch number, manufacturing date and expiry date.
Physical Stock	Records actual physical quantity and reconciles it with book stock.