Specific Identification Method – Inventory Methods in Financial Accounting

The specific identification method identifies the cost of each item in ending inventory. It can be used only when it is possible to identify the units in ending inventory as coming from specific purchases.

The specific identification method may appear logical, and it can be used by companies that deal in high-priced articles, such as works of art, precious gems, or rare antiques. However, most companies do not use it for the following reasons:

  1. It is usually impractical, if not impossible, to keep track of the purchase and sale of individual items.
  2. When a company deals in items that are identical but that it bought at different prices, deciding which items were sold becomes arbitrary. If the company were to use the specific identification method, it could raise or lower income by choosing the lower- or higher-priced items.
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