valuation of stocks

7/30/2019 Valuation of Stocks

1/23

Differences in Accounting

Topic:

Stock valuation methods


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.


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


4/23

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


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.


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.



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.


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.


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


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).


8/23

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.


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.


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.



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).


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


10/23

Stock Valuation Methods

United Kingdom


11/23

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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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 ?


13/23

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.


14/23

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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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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at 3-75

What is the value of her stock at the end of week 2 ?


18/23

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)


19/23

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


20/23

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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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.


22/23

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.


23/23

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.

valuation of stocks

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