Archive about 'Stock Valuation'

Accounting Test Question SV No.1 on Stock Valuation Methodologies

Accounting Test Question SV No.1:

Company XYZ uses a perpetual inventory system. Append below the following transaction relating to its merchandise inventory during the month of Nov’06

Date

Transaction

Nov 1

Inventory on hand - 3,000 units @ $8 each

Nov 1

Inventory on hand - 3,000 units @ $8 each

Nov 7

Bought 5,000 units for $8.40 each

Nov 13

Sold 4,000 units for $14.00 […]

Weighted Average Method(Part 3 of 3)

WEIGHTED AVERAGE method uses the weighted average value for all issues. This is done by dividing the total cost of materials by their quantities. A new issue price is calculated each time new material is received.

Illustration:

In March 2006, assuming that there is no opening stock and the following reflects the stock movement:

Mar 2 […]

Last In First Out (LIFO) (Part 2 or 3)

LIFO method assumes that the last items of stocks purchased are the first to be issued or sold. The valuation of closing stock is based on the cost of the earliest purchases.

Illustration:

In March 2006, assuming that there is no opening stock and the following reflects the stock movement:

Mar 2 Receipt 100 units @ […]

First In First Out Method (Part 1 of 3)

Basically, FIFO uses the price of the FIRST batch purchased for all issues until stock of that batch is exhausted. Then the price of the next batch received is used and so on.
Illustration:
Assuming there is no opening stock and the following reflects the stock movement:
Mar 2 Receipt 100 units @ $1.00 = $100.00
Mar 3 Receipt […]

Accounting For Stock: Selection Of The Best Stock Valuation Method (Part 4)

As the correct selection of stock valuation will affect the calculation of gross profit and ultimately the net income, we should understand the rationale for some enterprise to choose the type of stock valuation method.

FACTORS TO CONSIDER IN THE SELECTION OF STOCK VALUATION:

Tradition-Certain trade or industry has its own particular method of valuing stock

Taxation-As mentioned, […]