5. Specific Identification Method :

As per Para 11 of AS 2 “The specific identification
formula attributes specific costs to identified goods that have been bought or manufactured
and are segregated for a specific purpose.” Thus, under this method valuation is
made at the original or actual cost price for the specific quantity of identified goods.This
method has limited applications. The scale of operation should not be large and identification
of goods must be possible. There should not be frequent receipts and issues
of materials. The inventories should not be interchangeable and these have to be earmarked
for specific purposes.
Its greatest advantage is that it renders a correct valuation of stock and at the same time
ensures correct matching of costs with revenues.
It involves difficulties and clerical errors if The movement of goods is frequent and if
there are considerable price fluctuations.