Valuing the inventory should be based on a cost lower than the historical costs or net market value. However, several exceptions exist to this method, which include inventories of consumable stores, by-products, reusable waste materials, and non-reusable wastage.

Business owners can compare the historical costs with the market value for every individual item included in the inventory. Alternatively, similar items may be grouped to arrive at the cost. To derive at the historical cost, it is advisable to use the First In First Out method of inventory management. In comparison, owners use the Last In First Out method to derive the average cost of the inventories.

A specialized method for inventory management may be used for valuing those items that are not ordinary or for items produced for special purposes. Under this method, the costs of specific items are identified and isolated for specific purposes. The adjusted sale price is used by retail businesses to determine the value of those goods for which the costs are not readily apportioned. The adjusted sale price for valuing inventory is useful to manufacturing companies that require valuation of finished products that are used for forward sales contracts.

The standard costing method to value stocks is used for those items whose result is close to the approximate value derived with the FIFO, LIFO, and average cost methods. Businesses must include overheads with the exception of production overheads as a component of determining the inventory cost to the limit of being included in the current location and condition.

The financial statements prepared by the companies must provide details on the accounting policy used to value the inventories that includes the cost formula.

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