Skip to main content

Valuing Stocks

The basic rule is that "stocks are valued at the lower of cost or net realisable value." Sometimes I get confused when the scenario is asked in a different way. Here are two scenarios that I want you to attempt:


Value the following items of stock:

  1. Material costing $12,000 bought for processing and assembly for a profitable special order. Since buying these items, the cost price has fallen to $ 10,000.
  2. Equipment constructed for a customer for an agreed price of $ 18,000. This has recently been completed at a cost of $ 16,800. It has now been discovered that, in order to meet certain regulations, conversion with an extra cost $ 4,200 will be required. The customer has accepted partial responsibility and agreed to meet half the extra cost.
What are your answers ? I am sure that you will get it right. Respond as comments on the blog.

Answer 1 : Value of Material is _____

Answer 2: Value of Equipment is _______

Give reasons for your answer..

Regards,

Santosh Puthran
AICWA
Labels:
7 comments

Popular posts from this blog

Throughput Accounting

Throughput accounting (TA) is an alternative to cost accounting proposed by Eliyahu M. Goldratt. It is not based on Standard Costing or Activity Based Costing (ABC). Throughput Accounting is not costing and it does not allocate costs to products and services. It can be viewed as business intelligence for profit maximization. Conceptually throughput accounting seeks to increase the velocity at which products move through an organization by eliminiating bottlenecks within the organization.


Cost (or Management) accounting is an organization's internal method used to measure efficiency. Since no one outside the organization uses such internal accounts for investment or other decisions, any methods that an organization finds helpful can be used.


Throughput accounting improves profit performance with better management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables (throughput, inventory, and operating expense — defin…
Read more

Learning Curve Theory

Learning Curve Theory is concerned with the idea that when a new job, process or activity commences for the first time it is likely that the workforce involved will not achieve maximum efficiency immediately. Repetition of the task is likely to make the people more confident and knowledgeable and will eventually result in a more efficient and rapid operation. Eventually the learning process will stop after continually repeating the job. As a consequence the time to complete a task will initially decline and then stabilise once efficient working is achieved. The cumulative average time per unit is assumed to decrease by a constant percentage every time that output doubles. Cumulative average time refers to the average time per unit for all units produced so far, from and including the first one made.

Major areas within management accounting where learning curve theory is likely to have consequences and suggest potential limitations of this theory.


Areas of consequence:
A Standard Costing …
Read more

Resistence to Change - Approaches of Kotter and Schlesinger

The Six (6) Change Approaches of Kotter and Schlesinger is a model to prevent, decrease or minimize resistance to change in organizations.
According to Kotter and Schlesinger (1979), there are four reasons that certain people are resisting change: Parochial self-interest (some people are concerned with the implication of the change for themselves ad how it may effect their own interests, rather than considering the effects for the success of the business)Misunderstanding(communication problems; inadequate information)Low tolerance to change (certain people are very keen on security and stability in their work)Different assessments of the situation (some employees may disagree on the reasons for the change and on the advantages and disadvantages of the change process) Kotter and Schlesinger set out the following six (6) change approaches to deal with this resistance to change: Education and Communication - Where there is a lack…
Read more