Why do you calculate Buy price using FIFO Logic?

Why do you calculate Buy price using FIFO Logic?

Profit & Loss in Shares are Taxable. So to calculate right profit & Loss which can be bifurcated between Short Term Capital gain and Long Term Capital gain we need to apply FIFO (First in First Out) Logic

Example:

Avg Price: 781

Note: Entries highlighted in the same color are knocked off against each other.

FIFO is done on first in first out basis. For example, in this case, shares sold on 9 April 2018 would be knocked off against shares purchased on 15 Jan 2018. Average price would be calculated on the basis of quantity that which is left after knock off i.e. holdings. In this case, average price would be 781.

Intraday Knock Off Concept

Note: Entries highlighted in the same color are knocked off against each other.

Avg Price formula: { (100*159.2) + (200*156) }/300

Avg Price Value: 157.07

The shares which are bought and sold on same day are considered as intraday transactions and would get knocked off against each other. For example, in this case, 18 June 2018 sell entry would be knocked off against 18 June 2018 buy entry. Once intraday knock off is done, FIFO logic gets applied.

Note: Intraday trading is not allowed for stocks which fall under trade-to-trade segment.