Chapter 9- Stock

Question 1

Describe the effect of opening stock and closing stock on the P&L a/c

Answer 1

• opening stock increases the COGS in the P&L while closing stock decreases this expense

Question 2

What does FRS 102 state about the valuation of stock

Answer 2

• basic requirement is that stock should be valued at the lower of cost and estimated selling price less cost to complete the sale (NRV)

Question 3

What is the equation for NRV?

Answer 3

Expected selling price - all further costs to completion - selling and distribution costs

Question 4

What does it mean if NRV < Cost

Answer 4

• it is expected that stock will be sold at a loss in the future and the business must anticipate that loss immediately so it is not overstating one of the assets of the business

Question 5

What 3 methods can be used to calculate the cost of closing stock?

Answer 5

• FIFO
• Average cost
• weighted average cost

Question 6

What two ways can stock valuation for the accounts be obtained?

Answer 6

• year end valuation
• continuous inventory

Question 7

Describe the year end valuation method

Answer 7

• physical stock count is undertaken at the year end and each type of article held is valued at perhaps the most recent price paid or some other acceptable price

Question 8

Describe the continuous inventory method

Answer 8

• stores ledger system is untainted which records for each type of unit held the quantities in and out and remaining cost of these units
• at the end of year balances on all cards extracted
• spit checks may be carried out
• often year end stock take carried out for accuracy

Question 9

What is the closing stock double entry

Answer 9

Stock account debited (increase in assets)

Profit and loss account credited (decrease in expenses)

Question 10

What is the double entry for opening stock?

Answer 10

Profit and loss a/c debited (opening stock increases COS)

Stock a/c credited (decrease in assets, as we remove last periods closing stock as it has been sold)