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Stock Valuation: Calculation of NPV Saleable Price - Any Expenses Needed To Get The Stock Into A Saleable Condition

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Jul 480wesh
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27 views

Stock Valuation: Calculation of NPV Saleable Price - Any Expenses Needed To Get The Stock Into A Saleable Condition

Uploaded by

Jul 480wesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Stock Valuation

Terms you should know:

1. FIFO (first in first out) – the first stock bought should be the first stock to be
sold. This method is appropriate for businesses that sell goods such as perishable
goods which do not have a very long shelf life.

2. LIFO (last in first out) – the last stock to be bought should be the first stock to
be sold. This is appropriate for businesses that sell fashion goods or goods that
have a long shelf life.

3. AVCO (average cost) – the average cost of each item is calculated when new
stock is bought. Stock is then issued at the last average cost calculated.

4. NET PRESENT VALUE – this is calculated on stock that is damaged. The


prudence principle states that stock should not be over-valued.

Calculation of NPV = saleable price – any expenses needed to get the stock
into a saleable condition.

When valuing stock we always choose the LOWER OF COST OR NPV.

Other problems when calculating the final closing stock figure

1. Sales of stock during the physical stock count – ADD the cost price of the sales
back to the end stock balance.

2. Purchases of new stock during the physical stock count – SUBTRACT from the
end stock balance.

3. Stock received on a Sale or Return basis – SUBTRACT from the end stock
balance (as the stock does not belong to us).

4. Stock sent on a Sale or Return basis – ADD to the end stock balance (as the stock
still belongs to us).

5. Invoices or stock ordered during the financial year but will only be received after
the end of the financial year – ADD to the stock balance.

6. Mark up and Margin – Mark-up is a percent based on the Cost Price. Margin is a
percent based on the Sales Price. To change Mark-up to Margin (same numerator
divided by the denominator PLUS the numerator). To change Margin to Mark-up
(same numerator divided by the denominator MINUS the numerator).

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