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Stock

Stock. Definition. Assets held for the ordinary cause of the business In the process of production for such sale In the form of materials or supplies to be consumed in production process or in the rendering of services. Examples of stock.

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Stock

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  1. Stock

  2. Definition • Assets held for the ordinary cause of the business • In the process of production for such sale • In the form of materials or supplies to be consumed in production process or in the rendering of services

  3. Examples of stock • Goods purchased and held for resale such as merchandise and land/other property • Finished goods or work-in-progress being produced • Cost of services(as for case of service provider)

  4. Examples of costs excluded from the cost of inventories • Should be recognized as expenses • Abnormal amounts of wasted materials, labour or other production costs • Storage costs, unless those costs are necessary in the production process prior to a further production stage • Administrative overheads that do not contribute to bringing inventories to their present location ad condition • Selling costs

  5. Bases for valuation • Historical cost ----objective and verifiable • Current replacement cost ----the firm is a going concern • Lower of cost and net realizable value ----stated in HKAS 2

  6. Cost of Inventories Cost of Purchase e.g.purchase price/ import duties/other taxes Cost of Conversions e.g.cost directly related to the units of production Other Costs e.g.cost incurred to bring the inventories to present location and condition

  7. Net Realizable Value • Net Realizable Value is the estimated selling price in the ordinary course of business lessestimated costs of completion and the estimated costs necessary to make the sale. • Estimations are based on: *the most reliable evidence available at the time the estimates are made, including the fluctuations of price or cost occurring after the end of the period *the purpose for which the inventory is held

  8. Methods of Valuation • Special identification • First-in, First-out (FIFO) • Last-in, First-out (LIFO) • Weighed Average (AVCO) Different methods of inventories valuation may effect the trading account

  9. Example • During the year, the following were the purchases and sales of inventory: • Purchases JAN 8units@ $10 MAR 8units@ $12 OCT 15units@ $16 Sales JUN 6units@ $20 DEC 20units@ $25

  10. Past Paper Questions

  11. Commonly asked questions Accounting treatment correct or not? Adjustment of stock value Explanation of Cost/ NRV/ Lower of cost and NRV Change of profits using different valuation methods

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