9. Stock Flashcards
What does FRS 102, Section 13 deal with?
-The valuation of stock and WIP and the basic requirement stick could be valued at the lower of:
1. cost
2. estimated selling price less costs to complete and sell (aka net realisable value/NRV)
What does cost include (FRS 103)
COME BACK TO SECTION IN BOOK AS FURTHER INFO
Includes all cost of purchase and conversion incurred to get stock to its present location and condition. Any method acceptable given it gives a reasonable approximation
What are the three methods of valuing closing stock per FRS 102?
- FIFO (first in first out) - old stock sold first and newest stock kept on shelves
- Average cost - average purchase price over time and allocates to closing stock
- Weighted average cost - calculated after each purchase and sale. Final weighted average calc after all purchases and sales for yr dealt with, becomes cost per unit to value closing stock
What are the two ways stock valuation for accounts can be obtained?
- Physical stock count - year-end and each type of article held valued at by a suitable price. Total value used in accounts
- Stores ledger system maintained which records the quantities in, out and remaining. Cost units also recorded e.g. pg141
How can we account for closing stock?
COME BACK TO SECTION IN BOOK RE OPENIGN STOCK ETC
- Set up balance sheet for stock at end of accounting period
- Debit stock asset amount and credit P&L account with value of closing stock
3. Carry down balance on stock asset amount
What is FRS 102, Section 23?
- REVENUE RECOGNISION FOR SERVICE BUSINESSES
- Covers all revenue arising to a business and should be recognised when received or receivable
-If a service is completed within one accounting period then revenue should be accounted for within that accounting period
-Situation more complicated when provision of services spans more than one accounting period
What does FRS 102 say regarding sales income?
-Sales income builds up over the life of the service contract, rather than when work is completed or client invoiced
-thus, requires businesses to recognise value of work done under service contract as sales income in P&L based on stage of completion of contract
How will accounts reflect income from sales contract and what conditions are there (under FRS 102)?
-given revenue, costs and stage of completion can be reliably measured and it’s probable revenue will be received, the accounts will recognise the sales value of work done to date
-it will also show related costs as an expense in the same period
Sales contract - what happens if the outcome cannot be estimated reliably?
Revenue should be recognised only to the extent of the expenses recognised that are recoverable from the customer
Explain revenue recognition
-The amount of sales income that should be recognised on unfinished service contracts depends on the nature of the service
-Businesses must develop an appropriate accounting policy to recognise revenue on their unfinished contracts based on the stage of completion of the contract, and apply this policy consistently
-revenue recognised should reflect any uncertainties to the amount the customer will accept and pay
What are tax implication of revenue recognition?
Revenue figures will be used for tax purposes as for accounting purposes, given the accounts are prepared in accordance with UK GAAP (more info in Chapter 12)
