The usual accounting basis for stock valuation is the LOWER of cost & Net realizable value. What is cost? Cost as mentioned in my other article is the price that the enterprise has paid the suppliers to acquire the goods (historical cost concept) Whilst, Net Realisable Value (NRV) is the total received from sales after … Read more
INCREASE IN PROVISION FOR STOCK OBSOLESCENCE: Assuming a provision for Stock Obsolescence of $100,000 is created at Quarter 1. At end of Quarter 2, you have re-done the provision and noted that you need increase a further amount of $50,000. How should we treat this increase in provision? For Quarter, Let’s us have the Original … Read more
Like the provision for doubtful debts, the accounting for provision for stock obsolescence is almost similar. [please refer to my earlier article on stock written off] This article is to discuss the various methods of creating provision for stock obsolescence METHOD 1: GENERAL PROVISION BASED ON AS % OF CLOSING STOCK BALANCE This methodology is … Read more
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 … Read more
In Part 2, we have learned about the purchases account. When an enterprise purchases goods from the suppliers, besides the cost charged by the suppliers, we have other types of costs which are also part of the cost of the purchases of goods /services. OTHER TYPES OF COSTS OF PURCHASES COMPRISES: Transportation costs. Other terms … Read more
WHAT IS COST OF GOODS SOLD? Â In Part 1, we understood what is stock and what stock stand for. These stock-in-trade or inventories are purchases of goods by a business for resale to the customers with the intention of earning a profit in the process. On the other hand, cost of goods sold is … Read more
WHAT IS STOCK/INVENTORY? Stock/Inventory forms part of the operating cycle of the business. The enterprise purchases stock from the supplier in raw material form, convert it into work in progress and finally finished goods for resale to customers. Stock/inventory is part of the Current Asset Category of the Balance Sheet. To define stock, it is … Read more
To ensure that the financial statements reflects the complete, relevant and accurate picture of the transactions and events, it is important to appreciate and adhere to this concept called Substance Over Form WHAT IS SUBSTANCE OVER FORM? When an entity practice the Substance Over Form, it means that the financial statements reflect the financial reality … Read more
This article describes briefly what are dividends and then proceed to differentiate interim and final dividend. Generally, what do we mean by dividends? When profits are divided among the shareholders of a company, each shareholder receives a portion of the profit called dividends. How dividends are computed: Dividends are calculated based on the paid-up capital … Read more
One day, the father of a very wealthy family took his son on a trip to the country with the express purpose of showing him how poor people live. They spent a couple of days and nights on the farm of what would be considered a very poor family. On their return from their trip, … Read more