SAP@me,
The other experts have nicely explained the logical pros and cons of the two methods. I will comment on your question about government restrictions.
Each government is different, and each has their own regulations and restrictions. The purpose of "inventory" regulations here in the US is mostly with publicly held companies, to protect the interests of the stockholders from fraud resulting from misstatement of assets.
Here in the US, either method is acceptable. Inventory methodology and inventory records are auditable by Certified Public Accounting firms, and by tax authorities.
Privately held companies typically are not covered by such restrictions, but must be able to provide justification for all tax claims. Large private companies therefore typically use the same auditing firms, and comply with the same restrictions, as do public companies, in order to produce audits that will be referenced during filing of taxes. Smaller private companies can use just about any method they wish, as long as they can convince the tax authorities that their tax claims are valid.
Unless your country has more restrictions than the US, you should choose the system that best meets your business needs, and not worry so much about government restrictions.
Best Regards,
DB49
