diff --git a/erpnext/stock/doctype/item/test_item.py b/erpnext/stock/doctype/item/test_item.py
index 68e545ba140..baaf51b47a0 100644
--- a/erpnext/stock/doctype/item/test_item.py
+++ b/erpnext/stock/doctype/item/test_item.py
@@ -29,7 +29,10 @@ from erpnext.tests.utils import ERPNextTestCase, change_settings
 test_ignore = ["BOM"]
 test_dependencies = ["Warehouse", "Item Group", "Item Tax Template", "Brand", "Item Attribute"]
 
-def make_item(item_code, properties=None):
+def make_item(item_code=None, properties=None):
+	if not item_code:
+		item_code = frappe.generate_hash(length=16)
+
 	if frappe.db.exists("Item", item_code):
 		return frappe.get_doc("Item", item_code)
 
diff --git a/erpnext/stock/doctype/stock_ledger_entry/test_stock_ledger_entry.py b/erpnext/stock/doctype/stock_ledger_entry/test_stock_ledger_entry.py
index 6d113ba4eb6..1ae2132dc2e 100644
--- a/erpnext/stock/doctype/stock_ledger_entry/test_stock_ledger_entry.py
+++ b/erpnext/stock/doctype/stock_ledger_entry/test_stock_ledger_entry.py
@@ -5,6 +5,7 @@ import json
 
 import frappe
 from frappe.core.page.permission_manager.permission_manager import reset
+from frappe.tests.utils import FrappeTestCase, change_settings
 from frappe.utils import add_days, today
 
 from erpnext.stock.doctype.delivery_note.test_delivery_note import (
@@ -22,10 +23,9 @@ from erpnext.stock.doctype.stock_reconciliation.test_stock_reconciliation import
 	create_stock_reconciliation,
 )
 from erpnext.stock.stock_ledger import get_previous_sle
-from erpnext.tests.utils import ERPNextTestCase
 
 
-class TestStockLedgerEntry(ERPNextTestCase):
+class TestStockLedgerEntry(FrappeTestCase):
 	def setUp(self):
 		items = create_items()
 		reset('Stock Entry')
@@ -443,6 +443,31 @@ class TestStockLedgerEntry(ERPNextTestCase):
 			{"incoming_rate": sum(rates) * 10}
 		], sle_filters={"item_code": packed.name})
 
+	@change_settings("Stock Settings", {"allow_negative_stock": 1})
+	def test_negative_fifo_valuation(self):
+		"""
+		When stock goes negative discard FIFO queue.
+		Only pervailing valuation rate should be used for making transactions in such cases.
+		"""
+		item = make_item(properties={"allow_negative_stock": 1}).name
+		warehouse = "_Test Warehouse - _TC"
+
+		receipt = make_stock_entry(item_code=item, target=warehouse, qty=10, rate=10)
+		consume1 = make_stock_entry(item_code=item, source=warehouse, qty=15)
+
+		self.assertSLEs(consume1, [
+			{"stock_value": -5 * 10, "stock_queue": [[-5, 10]]}
+		])
+
+		consume2 = make_stock_entry(item_code=item, source=warehouse, qty=5)
+		self.assertSLEs(consume2, [
+			{"stock_value": -10 * 10, "stock_queue": [[-10, 10]]}
+		])
+
+		receipt2 = make_stock_entry(item_code=item, target=warehouse, qty=15, rate=15)
+		self.assertSLEs(receipt2, [
+			{"stock_queue": [[5, 15]], "stock_value_difference": 175}
+		])
 
 def create_repack_entry(**args):
 	args = frappe._dict(args)