Stock

Question 1

How should stock be valued?

Answer 1

At the lower of cost or NRV

Question 2

How does opening stock impact cost of goods sold?

Answer 2

Increases cost of goods sold in profit and loss account

Question 3

How does closing stock impact cost of goods sold?

Answer 3

Decreases the cost of goods sold expense

Question 4

What term does FRS 102 use to refer to stock?

Answer 4

Inventories

Question 5

How is the cost of stock calculated?

Answer 5

Estimated selling price
Less all further costs to completion
Less selling and distribution costs

Question 6

How is FIFO calculated?

Answer 6

The most recent purchase price of the stock is used to value the stock as it is assumed that the newest stock is kept on the shelves

Question 7

How is average stock value calculated?

Answer 7

Purchase prices/number of purchases

An average of the price of purchases

Question 8

How is the weighted average method use to calculate stock value?

Answer 8

Uses profit to calculate cost, if there 100 units at x price and 100 units at y price, the difference is the cost of sales

Question 9

How is closing stock calculated?

Answer 9

Opening stock + purchases - closing stock

Question 10

What are the two sets of accounting entries for closing stock?

Answer 10

Debit stock asset account and credit P+L with value of closing stock (thus reducing COS)

Question 11

What is the closing stock value that appears on the balance sheet?

Answer 11

The carried down closing stock balance on the stock account

Question 12

How is opening stock accounted for on the next accounting period?

Answer 12

Credit stock asset account to remove last periods closing stock

Debit profit and loss account to increase the COS expense

Move to P+L as a debt to represent opening stock which has been sold in this accounting period

Question 13

When should revenue be recognised?

Answer 13

When it is received, or where sales income builds up over a service contract, to the extent of completion of the contract

Question 14

What are the tax implications of revenue recognition?

Answer 14

The same figures will be used for tax purposes as for accounting purposes, provided they have been prepared in accordance with UK GAAP

Question 15

Which costs should be included in the cost of a finished product held in a distribution warehouse ready for distribution at the end of the year?

Answer 15

Transport to the warehouse, import costs of raw materials and transport costs of raw materials

Question 16

What must happen per FRS 102 where stock is expected to be sold at a loss?

Answer 16

It must be immediately reflected in the accounts

Question 17

Are selling and distribution costs accounted for when calculating NRV?

Answer 17

Yes, all costs to bring stock to their current condition and location are included

Question 18

What does NRV include?

Answer 18

All further costs to completion, plus selling and distribution costs