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ISC Accounts Stock Valuation

ISC Accounts Stock Valuation

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Published by: bcom on Jun 16, 2009
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04/30/2013

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Rohit Agarwal
9883248954
10
rohit.agarwal@icai.org 
 
Normal & Crash Courses for ISC, CBSE, BCom, BBA, CA & CS
Chapter 2:
 
Valuation of Stock
 
Format of Bin Card:
Bin Card
Bin No. : Location: Maximum Level:Description: Minimum Level:Code: Orderings Level:Stores Ledger Folio: Reorder Quantity:Receipt Issue Balance PhysicalDate GRN No. Qty. MRN No. Qty. Quantity Verification
 
Format of Stores Ledger:
ABC LtdStores Ledger ( _ _ _ _ Method )
Receipts Issues BalanceDateGRNNo.Qty(Unit)RateValue(Rs.)SRNNo.Qty(Unit)RateValue(Rs.)Qty(Unit)RateValue(Rs.)Remarks
 
Surplus of materials will appear in the receipts column.
 
Shortage of materials will appear in the issues column.
 
Returns from department to Stores will appear in the receipts column @ original issue.
 
Returns from Stores to suppliers will appear in the issues column @ original purchase.
 
Materials received as replacement from suppliers will be considered fresh receipts.
 
Transfer of Material from one department to other department is to be ignored.
 
Valuation of Inventory
FIFO LIFOPeriodic Perpetual Periodic Perpetual
 
Periodic:
Step 1:
Calculation of units of Closing Stock Particulars UnitsOpening Stock XXXAdd: Purchases ( XX + XX + XX……) XXXXXXLess: Issues ( XX + XX + XX……) XXXClosing Stock XXX
Step 2:
Apply principle of FIFO/ LIFO to determine the value of closing Stock.
 
Perpetual:
Statement showing Valuation of Inventory
Date Particulars RateRs. 10 Rs. 11 Rs. 12 Rs. 13 Rs. 14Opening Stock XXAdd: Purchases XXLess: Issue _______________________________________Closing stock _______________________________________Value
 
Rohit Agarwal
9883248954
rohit.agarwal@icai.org 
11
 
Concept of Stock & Stores:
Stock means all goods owned and held for sale in the ordinary course of business or raw materials held for conversion into finished goods. Stores mean materials held by a concernfor the purpose of consumption in the business and not for resale.
 
Objectives of Stock Valuation:
1.
 
To ascertain the correct profit or loss made by the enterprise.2.
 
To disclose the true financial position of the enterprise.3.
 
To ascertain accurately the working capital position of the enterprise.
 
Methods:
1.
 
First-in-First out Method2.
 
Last-in-First out method3.
 
Simple Average Cost4.
 
Weighted Average Cost
 
First-in-First out Method :
This method is based on the assumption that the first item pu
 
rchased is thefirst item sold, that is all inventories are sold in the order in which they are purchased. Thus the cost of materials issued represents the cost of earlier purchases and cost of closing stock represent the cost of latestpurchases.
 
The advantages of FIFO are:
1. Stocks are valued strictly on cost.2. In the case of falling prices, lower profits are reported, thus IT liability is reduced.
 
The disadvantages of FIFO are:
1. The costs assigned to inventories may not reflect the current prices.2. In the case of rising prices, higher profits are reported, thus IT liability is increased.
 
Last-in-First out method:
This method is based on the assumption that the recent item purchased is thefirst item sold. Thus the cost of materials issued represents the cost of latest purchases and cost of closingstock represent the cost of earlier purchases.
 
The advantages of LIFO are:
1. In the case of rising prices, lower profits are reported, thus IT liability is reduced.2. Stocks are valued strictly on cost.
 
The disadvantages of LIFO are:
1. In the case of falling prices, higher profits are reported, thus IT liability is increased.2. The costs assigned to inventories may not reflect the current prices.
 
Differences:
Take points from above (Assumption, Rising Prices, Falling Prices, Cost of materials issuedand Cost of closing stock.)
Periodic Inventory System Perpetual Inventory System
 Explanation
Inventory is ascertained on the basis of physical stock taking, done at periodicintervals.Inventory is ascertained on the basis of records,which are kept continuously up to date.
 Advantages & Disadvantages
Stock Balances are not readily available. Stock Balances are readily available.It requires closing down of work for stock taking.It does not require closing down of work forstock taking.It is simple and inexpensive. It is elaborate and expensive.This is suitable where the business is small. This is not suitable, if the business is small.
Note
: While FIFO Periodic & FIFO Perpetual gives the same value, LIFO Periodic & LIFO Perpetual givesthe different values. So, if question is silent about the choice of method, then for FIFO Periodic isrecommended and for LIFO Perpetual is recommended.
Basis Bin Card Stores Ledger
What it records? BC is a record of only the quantityof material received, issued and inhand.SL is a record of both the quantityand value of material received,issued and in hand.

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