AC120 lecture 22

1. AC120 lecture 22 • Completion of VAT • Accounting for stock – SSAP 9

2. Example 1 • Organisation A is registered for VAT • Sales of goods on credit to J Bloggs €100 • Sales of goods for cash to J Bloggs €200 • Purchases of goods on credit from N Maguire €50 • Purchase of fixed asset €1,000 • Amounts don’t include VAT. Applicable VAT rate is 10%.

3. Example 2 • Organisation A is not registered for VAT • Sales of goods on credit to J Bloggs €100 • Sales of goods for cash to J Bloggs €200 • Purchases of goods on credit from N Maguire €50 – N Maguire is registered for VAT! • Purchase of fixed asset €1,000 – supplier is not registered for VAT • Relevant amounts don’t include VAT of 10%

4. Valuation of stock • SSAP 9 – Accounting for stock and long term contracts • Issued in 1975 and revised in 1988 • Valuation of stock for inclusion in the final accounts as part of cost of goods sold and as an asset on the balance sheet

5. What is included in stock? • Goods or other assets purchased for resale • Consumable stores • Raw materials for incorporation into products for resale • Products at intermediate stages of completion (work in progress)

6. Valuation of stock • SSAP 9 states that stock must be valued at the lower of cost and net realisable value (NRV) • Comparison of cost and NRV should be on an item by item basis or of groups of similar items.

7. Example of valuation principle Cost NRV Item X 3,000 4,500 Item Y 2,000 3,000 Item Z 2,000 500 Total 7,000 8,000

8. What do we mean by ‘cost’? • Cost = cost of purchase plus cost of conversion • Cost of purchase • Invoice price • Import duties • Transport costs (carriage inwards) • Handling costs • Less trade discounts, rebates and subsidies

9. What do we mean by ‘cost’? • Cost of conversion (manufacturing environment) • Direct costs specifically attributable to units of production • Production overheads in respect of production materials and labour • Parker Mechanical Parrots example