Stock Valuation Flashcards
Product costs
Product costs can be allocated to individual units of stock on a logical basis.
Recorded as increases to the unit of stock in the stock card and are included in the stock control.
Incurred only in the period in which the product is sold.a
Period costs
Cannot be allocated to a specific unit of stock on a logical basis.
Not included in the unit cost and are therefore recorded separately in the ledger as an expense.
Recognised as being incurred in the period in which the stock is purchased
The lower of cost and NRV
To avoid breaching conservatism, stock must be valued at the lower of cost and net realisable value so as to not overstate assets.
NRV is the estimated selling price of the stock less any costs involved in its selling, marketing or distribution.
ESTIMATED SELLING PRICE
-
DIRECT SELLING EXPENSES
Stock write-down
When the NRV of a stock item falls below its cost price:
-An expense will be incurred, in the form of a loss on the sale of the stock
-The asset stock must be “written down” to reflect its lower value
-Calculated by deducting (historical) cost from NRV
HC-NRV
Overall effect of a stock write down
The overall effect of a stock write down is to decrease both assets (stock) and Owners equity (increase in expense which decreases net profit)
The cost of stock
The cost of stock includes the purchase price and all costs incurred in order to bring the stock into a condition position and location ready for sale.
Does not include GST
