STOCK VALUATION METHODS GRADE 12 ACCOUNTIN G LESSON

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STOCK VALUATION METHODS GRADE 12 ACCOUNTIN G LESSON 7 Mr Golightly

STOCK VALUATION METHODS GRADE 12 ACCOUNTIN G LESSON 7 Mr Golightly

STOCK VALUATION METHODS When stock consists of several similar items the cost price of

STOCK VALUATION METHODS When stock consists of several similar items the cost price of each item is difficult to ascertain Ø Especially as prices are continually rising v Rarely can a dealer obtain his stock for the same price throughout the year v Therefore there are several methods of assigning costs to stock Must choose 1 method & use it consistently – may not change as will produce unrealistic Financials ü Must disclose in Financials method used ü

STOCK VALUATION METHODS 1 st method: FIFO (FIRST IN FIRST OUT) FEATURES: Stock purchased

STOCK VALUATION METHODS 1 st method: FIFO (FIRST IN FIRST OUT) FEATURES: Stock purchased 1 st is sold 1 st Closing inventory reflected at most recent price Suitable for any type of business Preferred method for stores with stock with limited shelf life Old stock must be packed in front of shelf

STOCK VALUATION METHODS EXAMPLE: Information: page 411 Jan 1 Purchased 10 units @ R

STOCK VALUATION METHODS EXAMPLE: Information: page 411 Jan 1 Purchased 10 units @ R 5 per unit R 50 Feb 14 Purchased 15 units @ R 7 per unit R 105 Mar 31 Purchased 12 units @ R 7. 50 per unit R 90 Sold 20 units @ R 12 per unit R 240 REQUIRED: 1. 2. 3. 4. Calculate: the number of units unsold, Cost of sales Gross profit Prepare the Trading Account in the General ledger

STOCK VALUATION METHODS EXAMPLE cont: SOLUTION: 1. Number of units unsold on hand: Number

STOCK VALUATION METHODS EXAMPLE cont: SOLUTION: 1. Number of units unsold on hand: Number of units purchased 37 Number of units sold Number of units on hand (20) 17 VALUE OF UNITS UNSOLD: 12 X R 7. 50 = R 90 5 X R 7. 00 = R 35 (use value of last purchased units) R 125

STOCK VALUATION METHODS EXAMPLE cont: FIFO Page 411 First In First Out NB!! FIFO

STOCK VALUATION METHODS EXAMPLE cont: FIFO Page 411 First In First Out NB!! FIFO : CP of goods sold is “first bought first sold. ” 2. COST OF SALES 10 units @ R 5 per unit 10 units @ R 7 per unit Cost of Sales 3. GROSS PROFIT Sales [20 x R 12] Cost of sales R 50 R 70 R 120 R 240 [R 120]

STOCK VALUATION METHODS DO TASKS 10. 8 & 10. 9 PGS 414/415 : Periodic

STOCK VALUATION METHODS DO TASKS 10. 8 & 10. 9 PGS 414/415 : Periodic method Note: Cost of Sales = Opening Stock + Net Purchases – Closing stock 4. TRADING ACCOUNT Mar 31 Opening Stock Purchases to Profit & Loss (GP) 0 245 Mar 31 Sales Closing stock 240 125 120 365