Specific Identification Of Costs

Specific Identification Of Costs Assignment Help | Specific Identification Of Costs Homework Help

Specific Identification of Costs

The process of assigning costs is relatively simple in those situations where it is possible: (i) to keep track of the purchase price of each specific unit; (ii) to know which specific units were sold. In such cases, it is not difficult to ascertain the purchase price of the goods sold or withdrawn and the cost of the units still in hand. According to Simons: “In each instance, costs related to units sold are reported as cost of goods sold and costs identified with goods on hand remain to be reported as the ending inventory.” The essential feature of the specific identification method of assigning costs is that the business enterprise must keep track of the cost of each individual item bought and sold. The cost is marked on the unit or on its container or the unit can be located to its purchase invoice or cost record. This method of valuing inventory and cost of goods sold is feasible in those situations where purchases are not frequent and old items do not easily mix up with the new ones e.g., automobiles, the fine diamonds, furniture goods and so on. Thus this method is appropriate for enterprises that sell relatively few items of high unit cost. This is an appropriate treatment for items that are segregated for a specific project regardless of the fact whatever they have been purchases or produced. The specific identification method is rational and highly satisfactory in matching cost with revenue because of its objectively since actual costs are attached to the cost of goods and ending inventory.


In most situations, however, it is neither feasible nor practicable to identify each item of inventory and, therefore, the practice of specific identification of cost may be difficult or impossible to apply or may be considered inadequate because of special existing conditions. New items are mixed up with old units in common storage facilities, that is, on shelves or in bins or in other ways. Physical identification is, therefore, impossible or impracticable. The complications also arise when identical units of a particular inventory item have been bought at different prices and at different prices and at different times. In such a circumstances, specific identification of costs procedures may prove to be slow, burdensome and costly. When units are identical and interchangeable, this method opens the doors to possible profit manipulation through the choice of particular units of delivery. Finally frequent changes in the acquisition costs during the accounting period may force to charging of inventory expenses to revenue on a basis other than past identical costs.

For more help in Specific Identification of Costs click the button below to submit your homework assignment