Download - Valuation of Stocks
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7/30/2019 Valuation of Stocks
1/23
Differences in Accounting
Topic:
Stock valuation methods
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7/30/2019 Valuation of Stocks
2/23
Overview: Valuation of stocks
Methods: Fifo, Identical (you must use it if its possible), weighed average
Methods : Fifo, Lifo, weighed average
Methods : Fifo, Identical (you must use it if its possible), weighed average
Methods : Lifo, Hifo, Lofo, Kifo
Methods : Fifo, Identical (you must use it if its possible), weighed average, Lifo
Methods : Fifo, weighed average, Identical (you must use it if its possible),
Lifo, FIFO and weighed average (AVCO)
IFRS IAS 2 Inventories. Specific indentification. FIFO or average cost formulas.
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7/30/2019 Valuation of Stocks
3/23
Details Austria
Do you have "valuation at the lower of cost principle"?Yes if the value of an inventory piece decreases under the market price you have totake the lower one.
How do you calculate the costs of goods sold? Every sales transaction or once ayear?
During the year we book all purchases to an expense account and we book theadjustment once a year.
Which valuation methods are allowed for valuation of the stock?identical or average or FiFo. If the identical method is possible we must use it.
Is a perpetual inventory allowed? Is it necessary to make a physical inventorycount?
A perpetual inventory is allowed if you have an inventory management system. How do treat the inventory variance (like theft or breakage)?
We book it to a special expense account.
How are finished goods or goods in process valuated?cost of goods manufactured without imputed costs
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7/30/2019 Valuation of Stocks
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Details Denmark
Do you have "valuation at the lower of cost principle"?Always cost price.
How do you calculate the costs of goods sold? Every sales transaction or once ayear?Either every sales transaction or once a year depending on the ICT system .
Which valuation methods are allowed for valuation of the stock?The FIFO-method for inventory statement can be accepted. The LIFO-method canhowever not be accepted for the assessment of the inventory
Is a perpetual inventory allowed? Is it necessary to make a physical inventorycount?Yes.
How do treat the inventory variance (like theft or breakage)?We book it to a depeciation account.
How are finished goods or goods in process valuated?to cost price
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7/30/2019 Valuation of Stocks
5/23
Details Germany
Do you have "valuation at the lower of cost principle"?Yes if the devaluation is permanent
How do you calculate the costs of goods sold? Every sales transaction or once ayear?During the year we book all purchases to an expense account and we book the
adjustment once a year.
Which valuation methods are allowed for valuation of the stock?Only average method or LiFo and no FiFo.
Is a perpetual inventory allowed? Is it necessary to make a physical inventorycount?
A perpetual inventory is allowed if you have an inventory management system.
How do treat the inventory variance (like theft or breakage)?We book it to a special expense account.
How are finished goods or goods in process valuated?cost of goods manufactured without imputed costs
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7/30/2019 Valuation of Stocks
6/23
Details Estonia
Do you have "valuation at the lower of cost principle"?Inventories shall be measured in the balance sheet at the lower of cost or net realisablevalue.
How do you calculate the costs of goods sold? Every sales transaction or once ayear?
Usually we have perpetual inventory system, it means we show at the same time cost ofgoods sold and sales revenue. If enterprises use periodic inventory system, the cost ofgoods sold is calculated
Which valuation methods are allowed for valuation of the stock?Specific identification, FIFO, weighed average.
Is a perpetual inventory allowed? Is it necessary to make a physical inventorycount?
Perpetual inventory system is allowed. It is necessary to have a physical inventoryunder both methods (periodic and perpetual system).
How do treat the inventory variance (like theft or breakage)?It is treated as expense.
How are finished goods or goods in process valuated?As the other items of inventories
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7/30/2019 Valuation of Stocks
7/23
Details Finland
Do you have "valuation at the lower of cost principle"?The lower of cost.
How do you calculate the costs of goods sold? Every sales transaction or once ayear?Every sales transactions
Which valuation methods are allowed for valuation of the stock?We will value by using FIFO, LIFO, identical or average, many possibilities arealoud. For same stock we use the same method.
Is a perpetual inventory allowed? Is it necessary to make a physical inventorycount?Perpetual inventory system is allowed. It is necessary to have a physical inventoryunder both methods (periodic and perpetual system).
How do treat the inventory variance (like theft or breakage)?We correct the value of stock in our bookkeeping by these variances.
How are finished goods or goods in process valuated?Variable costs or variable costs + fixed costs (of manufactured goods).
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7/30/2019 Valuation of Stocks
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Details Hungary
Do you have "valuation at the lower of cost principle"?Yes if the value of an inventory piece decreases under the market price you have totake the lower one.
How do you calculate the costs of goods sold? Every sales transaction or once ayear?
2 possibilities: First to inventory and then to expenses or immediately to purchaseexpenses.
Which valuation methods are allowed for valuation of the stock?Average method or FiFo.
Is a perpetual inventory allowed? Is it necessary to make a physical inventorycount?
A perpetual inventory is allowed if you have an inventory management system. How do treat the inventory variance (like theft or breakage)?
We book it to a special expense account.
How are finished goods or goods in process valuated?cost of goods manufactured without imputed costs
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7/30/2019 Valuation of Stocks
9/23
Details UK
Do you have "valuation at the lower of cost principle"?We value the stock at the lower of cost or net realisable value.
How do you calculate the costs of goods sold? Every sales transaction or once ayear?Sales + Closing Stock Less Opening Stock.
Which valuation methods are allowed for valuation of the stock?LIFO, FIFO and AVCO (see following pages).
Is a perpetual inventory allowed? Is it necessary to make a physical inventorycount?
A perpetual inventory is allowed if you have an inventory management system .
How do treat the inventory variance (like theft or breakage)?We post it to a special expense account .
How are finished goods or goods in process valuated?Cost of goods manufactured
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7/30/2019 Valuation of Stocks
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Stock Valuation Methods
United Kingdom
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7/30/2019 Valuation of Stocks
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International Accounting Standards no longer permit the
use of the last infirst out (LIFO) method of determining
the valuation of stock.
IAS 2 will allow the continued use of first infirst out
(FIFO) and of the average cost method (AVCO)
Some inventories do not fall into IAS 2. These include
agricultural products after harvest and mineral productswhich are measured at net realisable value.
FIFO First In First Out
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7/30/2019 Valuation of Stocks
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This is the most common method of determining stock
valuation. It makes the assumption that the first stock
received will be the first that is sold.
Older stocks are assumed to be sold before the most
recent stock.
The stock valuation then is made on only the most recent
stock.
What is FIFO ?
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7/30/2019 Valuation of Stocks
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Choosing a Method
Once a method for stock valuation has been selected a business
should continue to use that method unless there is a very good
reason to change the method.
This is an example of the consistency concept in accounting.
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7/30/2019 Valuation of Stocks
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An example of stock valuation
Sues Bookstore is making a stock valuation for the title
Accounting Concepts and Principles
In week 1 she bought 100 copies at 2-00 and sold 80 copies at3-50p
In week 2 she bought 200 copies at 2-10 and sold 160 copies
at 3-75
What is the value of her stock at the end of week 2 ?
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7/30/2019 Valuation of Stocks
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Finding the solution FIFO
She has purchased 300 copies of the book, 100 in week 1 and
200 in week 2.
She has sold 240 copies of the book.
At the end of week 2 she has 60 copies left.
These books are from the batch purchased in week 2 at 2-
10p.
Her stock is valued at 60 x 2-10.
This amounts to 126-00
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What is AVCO ?
The average cost of the items purchased is calculated at the end
of the period.
When new stocks are received then a new average cost must be
calculated.
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7/30/2019 Valuation of Stocks
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An example of stock valuation
Sues Bookstore is making a stock valuation for the title
Accounting Concepts and Principles
In week 1 she bought 100 copies at 2-00 and sold 80 copies at3-50p
In week 2 she bought 200 copies at 2-10 and sold 160 copies
at 3-75
What is the value of her stock at the end of week 2 ?
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7/30/2019 Valuation of Stocks
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Finding the solution AVCO
At the end of week 1 there are 20 books in stock
purchased at 2-00. These are valued at 40-00
At the start of week 2 there are 200 books
valued at 420-00 This makes a total of 220 books costing 460-
00.
This is an average of 2-09 (to the nearestpenny)
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7/30/2019 Valuation of Stocks
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Finding the solution 2
There are 60 books left at the end of week
2
These are valued at 2-09 each
This gives a stock valuation of 125-40
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7/30/2019 Valuation of Stocks
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Net Realisable Value
Suppose the stock is valued and then the owner of the
business realises that the goods cannot be sold for that price.
Stock should be valued at the lower of cost and net realisable
value.
This is an example of the prudence concept in accounting.
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7/30/2019 Valuation of Stocks
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An example of stock valuation
Sues Bookstore is making a stock valuation for the title
Accounting Concepts and Principles
In week 1 she bought 100 copies at 2-00 and sold 80 copies at3-50p
In week 2 she bought 200 copies at 2-10 and sold 160 copies
at 3-75
At the end of week 4 she is left with 60 books which she
expects to be able to sell at 1-75 each.
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7/30/2019 Valuation of Stocks
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Value of her books
There are 60 books left
Each is valued at 1-75.
The total value of the stock is 60 x 1-75. The value is 105-00.
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7/30/2019 Valuation of Stocks
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Details IFRS
Do you have "valuation at the lower of cost or market principle"?In accordance with IAS 2: Generally inventories (stocks) are measured at the
lower of cost and net realisable value. If the net realisable value of an item that
has been written down subsequently increases, then the write-down is
reversed.
Which valuation methods are allowed for valuation of the stocks?In accordance with IAS 2: When items of inventories (stocks) are not
interchangeable, cost is determined on a individual basis. A cost formula
may be used when there are many interchangeable items. The cost formula
used should be FIFO or weighted average cost.
Other cost formulas, such as the standard cost or retailed method, may beused when the result approximate actual cost.