Beruflich Dokumente
Kultur Dokumente
Contents of chapter
This chapter shows that stock can be valued in many ways, so that there is no one ‘true’ figure of stock. It covers
the main methods currently in use. Make certain that students have read Section 3.1.
The FIFO method is probably the method most widely used by businesses.
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The reduction of the value of stock to net realisable value, if it is below cost, is a good example of the
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convention of conservatism (prudence). As this helps to show a lower profit, this is a good example for
the student to quote in examination answers.
Another good examination answer is by using stock valuation to illustrate the meaning of the convention
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of consistency. When a method of stock valuation is used, then it should be used consistently from one
year to the next.
Stock valuation also gives a good example of the going concern concept. Stock valued as though the firm
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is a continuing one produces a different figure from stock valued as though it all had to be sold very
quickly, e.g. if the firm had become bankrupt.
We can also get an illustration of materiality. If we had many hundreds of tonnes of coal in stock, we
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would surely not weigh it to the nearest kilo of weight to value it. We would, in some appropriate
manner, probably calculate it to the nearest tonne.
That is because it would cost too much to weigh the coal to get a really accurate measurement. It would
not be worth it, as the difference in valuation would not be a material one.
On the other hand, if we had gold bars in stock, the weight would be very carefully calculated. This is
because gold is worth a lot of money per unit weight whereas coal is not.
We have to adjust stock counted after the balance sheet date because:
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(i) There are sales made after the balance sheet date but before valuation. Remember to adjust for
profit content as stock valuation excludes profit.
(ii) There are returns inwards after the balance sheet date but before valuation. Also as in (i) adjust to
remove profit content.
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Answers to MCQs and exercises
3.1 C 3.2 C 3.3 D 3.4 C
3.5
(a) Category Cost Totals NRV Totals
$ $
A 1,110 1,180
B 380 560
C 1,260 950
D 1,340 1,650
Valuation:
Lowest for each category = $1,110 + $380 + $950 + $1,340 = $3,780
3.6X
(a) Category method:
Categories Cost totals NRV totals
$ $
A 1,150 1,630
B 2,040 2,030
C 1,230 1,180
3.7
(a) (i) FIFO 24 + 16 + 30 = 70 units bought
30 + 34 = 64 units sold
6 units in stock = 6 × $13 = $78
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(ii) LIFO
Received Issued Stock
20X7 $
Jan 24 × $10 24 × $10 = 240
(iii) AVCO
Issued cost Average units No. of Total
Received
per unit in stock stock value
20X7
Jan 24 × $10 $10 24 $240
Apr 16 × $12.50 $11 40 $440
Jun 30 × $11 $11 10 $110
Oct 30 × $13 $12.50 40 $500
Nov 34 × $12.50 $12.50 6 $75
3.8X
(a) (i) FIFO Units of goods purchased = 60
Units of goods sold = 40
Closing stock = 20 × $14 = $280
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(ii) LIFO
Received Issued Stock
20X9 $
Jan 30 × $12 30 × $12 = 360
May 30 × $14 30 × $12 = 360
30 × $14 = 420
780
(iii) AVCO
Average cost No. of units Total value
Received Issued
per unit in stock of stock
20X9 $
Jan 30 × $12 $12 30 360
May 30 × $14 $13 60 780
Jul 24 × $13 36 468
Nov 16 × $13 20 260
3.9
Item $ $
1 300 × $5 1,500
2 140 × $6 840
3 2,000 × $2 4,000
4 810 × $6 4,860
40 × $5 200 5,060
5 440 × $10 4,400
6 90 × $14 1,260
7 420 × $3 1,260
8 1,500 × $12 18,000
36,320
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3.10
(a) Tim Ding
Average cost Number of Value of
Date Received Issued
per unit units stock
20X6 $ $
Feb 1 Balance b/f 12.000 50 600
2 20 at $13 12.286 70 860
4 30 at $12.286 12.286 40 491
10 10 at $14.5 12.720 50 636
16 30 at $12.72 12.720 20 254
19 100 at $12 12.117 120 1,454
20 60 at $12.117 12.117 60 727
21 20 at $12.117 12.117 40 485
22 150 at $10 10.447 190 1,985
23 60 at $10.447 10.447 130 1,358
25 40 at $10.447 10.447 90 940
28 30 at $11 10.583 120 1,270
Workings: Purchases $
20 at $13 260
10 at $14.5 145
100 at $12 1,200
150 at $10 1,500
30 at $11 330
3,435
3.11X
(a) Thomas Choi
Statement for calculating the value of stock-in-trade as at 31 December 20X5
Stock Items No. in Stock Calculations Lower of cost
and
Net realisable value
$ $
Cameras 12 12 x $1,650 19,800
Less Repairs (4 × $600) 2,400 17,400
Mobiles 50 50 x $1,000 50,000
Recorders 20 20 x ($1,800 x 50%) 18,000
Total value of stock-in-trade as at 31 December 20X5 85,400
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(b) Thomas Choi
The Journal
Date Particulars Dr Cr
20X5 $ $
Dec 30 Drawings (5 × $1,000) + (2 × $900) 6,800
Purchases 6,800
Goods at cost taken by Thomas Choi for personal use.
Cash 5,000
Sales 5,000
Sales receipt omitted.
3.12
D C Ltd
Stock Valuation as at 31 December 20X8
$ $
Value of stock at 8 January 20X9 50,850
Add (1) Error in calculation ($1,600 – $160) 1,440
(2) Sales at cost ($500 – $100) 400
(4) Casting error ($4,299 – $2,499) 1,800 3,640
54,490
Less (3) Reduce to net realisable value ($560 – $425) 135
Corrected value of stock at 31 December 20X8 54,355
3.13X
W Chen
Computation of Stock as at 31 March 20X3
$ $
Stock at cost on 5 April 20X3 16,420
Add (1) Sales at cost ($730 × 80%) 584
(3) Error in stock undercast ($1.75 × 100 – $100) 75
(4) Stock sheet omitted 300
(5) Goods sent on approval at cost ($325 × 80%) 260 1,219
17,639
Less (1) Sales returns at cost ($85 × 80%) 68
(2) Supplied for next year 180
(4) Stock sheet overstated 30 278
Stock at cost on 31 March 20X3 17,361
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3.14
MacMac Tool Company
Revised Valuation of Closing Stock on 31 March 20X2
$ $
Value of stock at 3 April 20X2 467,500
Add (2) Component parts error (W1) 5,940
473,440
Less (1) Reduction to net realisable value (W2) 9,000
(5) Electric pump written off 36,000 45,000
Corrected value of stock 428,440
N.B. Assume that ‘The following information concerning the stock of the company was revealed on
3 April 20X2’ — means that the figures were revealed by a physical stock check on 3 April 20X2.
Consequently (3) hand tools would not be in stock on 3 April 20X2. Also (4) would not be in stock on that
date. Neither (3) nor (4) needs any adjustments to original stock figure.
3.15
1
(a) Mark-up of 25% =
4
1 1
Margin = = or 20%
4 +1 5
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