Financial Accounting (F.Y.B.B.

I) (Sem,-I;
306
307

21
STOCK VALUATION

1. INTRODUCTION
Account and Balance Sheet. Profit & Loss
The Final Accounts mainly consist of Profit & Loss
Balance Sheet states the position of
Account ascertains the profitability of the organisation while these two staternents we will have to
preparing
assets and liabilities as on aparticular date, While
take into consideration the value of the stock of goods in hand at the close of the accounting
period.
fair view of the financial position
The corTectness of the Profit & Loss Account and the true and
correctness of the value of stock at the end
as exhibited in Balance Sheet largely depends upon the
above two statements will give the
of the accounting period. If stock is not properly valued the principles of valuation of stock.
misleading results. Hence, it will beessential to study in detail the
2. MEANING
as assets :
AS-2 issued by the ICAI is applicable from 1 April, 2016. It defines inventory
a) held for sale in the ordinary course of business.
b) in the process of production for such sale; or
production process or the
c) in the form of materials or supplies to be consumed in the
rendering of services.
AS-2 further states that inventories cover :
retailer and held for sale:
a) goods purchased and held for resale; e.g. goods purchased by a
computer software held for resale; land or other property held for resale.
concern.
b) finished goods produced or work in progress being produced by the
awaiting use in the
c) materials, maintenance supplies, consumables and loose tools
production process.
AS-2 does not apply to :
iem of fixed asset and
a) machinery spares which can be used only in connection with an
for in
whose use is expected to be irregular; such machinery spares are accounted
accordance with A.S. 10.
which should be valued as
b) work in progress arising under construction contract,
per A.S.7.
a consultant.
c) work in progress in case of service providers e.g. incomplete assignments of
merchant banker, hospital etc.
d) Investments held as stock in trade e.g. shares, debentures held by a finance company.
gases.
e) Inventories of livesto ck, agricultural or forest produce, mineral oil, ores and
3. VALUATION OFSTOCK-IN-TRADE
all those goods, which
It is quite possible that abusinessman may not be successful in selling unsold at the end ot
may remain
are bought or produced in aperiod. Some portion of the goods
the year.
taken
Such unsold goods, which is called the "closing stock", should be properly valued and
into account for ascertaining the actual profitor loss.
SiockValuation 309

Unless closing stock is properly valued and brought into account, trading result will not
disclosethe true profit or loSs. If the closing stock is valued higher than the cost price, the profit
arrivedat will be higher or the loss would be lower than whatatit is, and will mislead the businessman
andothers,
On the other hand, if stock is valued at lower than the cost price the profit or loss as disclosed
and Profit & Loss Account would be less than the real profit. or the disclosed loss would
bytradingthanthe real loss. This may affect the
market price of shares in the case of companies.
be higher The
Stock-in--ttrade is a current asset, which is meant for resale or Consumption or production.
which ever is
value"
accepted principle as to the value stock is either "cost price" or"net realisable
Jower.
It is asound acCOunting principle that anticipated profits should not be taken into accournt.
losses must be taken into
hocause such antcipated proit may not be realised. But anticipated
account and provision should be made accordingly to cover such anticipated losses.
profit element in the stock.
Jf stock is valued at more than the cost it amounts to inclusion of
cost price even if the rise in price is of
Grock would never be valued at a higher price than the goods are sold.
permanent nature. Profits should be taken into account only when the the period i.e. on the date of
the end of
Even if the market price is more than the cost price at with the value of stock at that price as
Account should not be credited
Ralance Sheet, Profit 8 LOSS price of stock
other hand. if there is a decline in the market
hese goods have not been sold out. On hand, therefore
realisable value, a loss must be already been incured on the stock in market price.
ie. in the i.e. at
by valuing such stock at realisable value
such loss must be brought into account valuation of stock is that the methods used should be
principle to be noted in the
Another of valuation stock.
of
There should be no change in the method
consistent from year to year. giving a completely
method of valuation of stock is changed it affects the final accounts, opening stock and
If the Further, the
financial position of the business. unreliable and
false picture of earnings & the be on different basis causing the results to be
closing stock valuation would
misleading. VALUIATION
4 OBJECTIVES
OF STOCK
valuation of stock:
There are five objects of profit or loSS made during the accounting
year.
Ascertainment of the correct
1 position of the business.
2. Disclosure of true and fair financial
for loss of stock, if any,
due to fire, flood, etc.
correct statement of claims
3. Preparation of consignment.
Determination of the value of stock on basis.
4. the.value of stock sold on 'sale or return'
of
5. DeterminationERROR IN VALUING INVENTORY understated. It has gor
EFFECTS OF AN inventory is either overstated or under .
inventory means The effects are as
Error in valuation of &Loss Account and Balance Sheet. will be
on both the Profit the gross protit as well as net profit
uie effects
the closing
inventory is understated
1
understated. understated.
the business
will be period will be overstated.
Current assets of understated the net profit for the
. inventory is stated.
inventory is over
3. If the openingwill be reversed when the
effects
Ine above
6 INVENTORY SYSTEMS determininginventory :
systems of
There are two principal
1. Perpetual
Periodic System.
Inventory System. stock at the end of the
decided by physically counting the may
Periodic System value of stock is because of large volume of business, stock taking one week.
about
Under this method, enterprises
large sized case, purchases
and sales are suspended
for
Hence, stock has to be
account
ake evening
year. In
Ohe week.
recorded at
In such a and sales are
recorded at cost
selling price.

ascerurchasesThere
dre taking. method:
actual stock kilos or tonnes or in litres

1)
tainedCountby involvedinthis items can be weighed in
are twO steps physically. Certain
the items
and added sO as to get the value of inventory.
listed, priced, follows:
For
ii) counted are is preparedas
The items stock sheet
this purpose, a
 Financial Accounting (F.
310 YB.B.L) (Sem
Stock Sheet
No. of Units Price per unit Value
S. No. Particulars of Inventory

Cost
Fig. 21.I
sale
Advantages
a) Stock valuation is done accurately.
Hist
b) It is less expensive
Disadvantages
of the accounting period. Con
a) It affects nomal business operations at the end
are required more freguently
b) I becomes moreexpensive if the income statements
c) DisCrepancies will never come to light. inw
d) Inventory control is not possible under thissystem. disc

Under this system cost of goods sold is calculated as follows: pur

Particulars
Stock at the beginning of the period
Add : Purchases during the period
Cost of goods available for sale
Less : Stock at the end of the period
Cost of goods sold
Working of the System
i) Previous year's closing stock becomes the opening stock for the current year. The value of
opening stock is debited to Trading Account. am
ii) Purchases for the period are debited to Trading Account. list
ii) Stock at the end of the period is credited to Trading Account.
iv) The resulting figure is the cost of goods sold. So
2. Perpetual Inventory System
It is a system of records maintained by the controlling department which reflects the physical
movement of stocks & their current balance. It requires continuous record keeping of all inlows
and outflows of inventory items. The Inventory Account is updated after each purchase or sae
transaction.

Advantages
a) The normal working is not disturbed.
b) There is no need to take stock by physical count.
c) It is easier to control losses.
d) There is no sudden out of stock situation leading to customer dissatisfaction.
e) It facilitates continuous stock taking.
Disadvantages
a) It is costly.
b) Inventory includes lost goods.
c) It becomes complicated to record each and every transaction.
The stock is valued at cost price or market price whichever is lower. It is essential to take ca
to exclude anyobsolete or unsaleable stocks to provide against losses.
Distinction between Periodic and Perpetual System
Periodic Perpetual
1. It is based on physical verification. 1. It is based on book records.
Stock and
2. It provides information about stock and cost 2. It provides information about
of sales periodically. cost of sales continuously.
sold as
3. It decides stock and cost of goods sold as 3. It decides stock and cost of goods
residual figure. balancing figure.
(Sem ockValuation

sa
Itis simple 8less
costly method. 311

facilitate inventory control.

It does not It is a costly
method.
It requires suspension of S. It
for counting of stock facilitates
business activities6. It does not affet inventory control.
the operation of business
METHODS OF activities.
7.
CostPrice VALUATION OF STOCK
It is based on
saleis
complete. Costrealisation
price canconcept.
be According to this
Historical Cost
historical cost or concept. revenue is not realised until the
standard cost or replacement cost.
As per AS-2 Historical cost
Onversion; and (c) Other represents an
appropriate
costs inaured in Combination of (a) Cost of purchase: b) Cost of
Cost of Purchase bringing the inventories to their present location and condition.
As per AS-2, Cost of
wards and other purchase includes the purchase price
expenditure
eunt. rebates, duty drawback and
including duties and taxes, freight
directly attributable to the acquisition.
rchases. Following formula should beother similar items is deducted whileThedeciding
amount of trade
the cost of
applied to decide cost of purchase
Purchase Price Particulars
Add : Duties and Taxes XX
Less: Tax Refundable
Less : Trade Discount,
Add : Transport ChargesRebate, Duty Drawbacks
/Loading Charges etc. XX
Cost of Purchases XX

"alue of
Ilustration:1
Sun Ltd. purchased 1,000 units of raw materials at a
list price of 50 per unit. The duties and taxes
mounted to 35,000 out of which 10,000 was refundable. The supplier allowed a rebate of? 6,000 on the
ist price. The company spent ?7,000on transportation and ? 2,000 on
loading and unloading.
Calculate the cost of purchase.
Solution
Particulars
Purchase Price (1,000 >x 50) 50,000
infious Add: Excise Duty 35,000
85,000
Less : Refundable Duty 10,000
75,000
Less : Rebate 6,000
69,000
Add : Transport & Loading 9,000
Cost of Purchases 78,000
D) Cost of
Conversion
ns per A.S. 2 the cost of conversion of inventories'
include direct coOst related to the unite :
abour charges. It also includes proportion of fixed and variable cost incurred for converting raw
goods. Fixed production overheads are indirect costs of production that
Iiaterialsconstant
ermain into finished
irrespective of production.
For example, depreciation, repairs, management
overheads are those, which vary, in direct proportion to
etpensesFor
utput.
of lactory. Variable production
exarnple, indirect
materials,indirect labour etc.

Other Costs than production Overheads i.e. ottice overheads or cost of

include overheads other
These costs
Aesigring the product. Stocks
Assipergnment
As AS. Costs 2
of Costs to
of
inventories should
Methods. Hence, the
be assigned by using First In First Out (FIFO)
other methods ofi stock valuation are not discussed.
or

WeightedFirstthis In,
In
AVerage Cost

the items of
Method
First Out (FIFO)stock are usedinthe same order as they arrive in the stores. The
wiih the last and working backward. This is done on
ock is
e assumpion method,that latest purchased
purchases starting
are still on hand and have not been sold, i.e., the goods are

din the
vyaluorder
ed dt the rates

in which they
are
purchased.
 Financial Accounting
312

FIFO Meth od
(F.Y.BBL)(Sem
Sale of Goods Cost of Stock sold
5+ 10 +15 - 30

Remaining Stock

Closing Stock 1
7 20 {25 20 + 25 = 45

Total Stock available for Sale

5+ 10+ 15 + 20 +25 75
Fig. 21.2

lustration : 2 (Short Problem)

From the following information find out value of stock as per FIFO method.
Stock Register
Year Purchases Units Rate Sold units
100 40
2018 January
March 100 50
80
May
200 40
July
October 200

Solution
Valuation of Stock
Purchases Rate Sales Stock Rate
Year
Quantity Per unit Quantity (Units)
100 units 40 100
2018 January
March 100 units 50 200
80 units 120
May
200 units 40 320
July 120 40
October 200 units
On the assumption, whatever is purchased first sold out first, then naturally the stock on hand represenß
from the latest lot.
The purchase of July being at? 40 per unit, stock to be valued at that price.
Hence, the value of closing stock 120 x 40
74,800.
Merits
a) This is a simple method of valuation of stock if prices of material do not vary frequenty
b) The stock calculated as per this method is quite close to the present value of the se
Because the stock is valued at the mostrecent price. It is quite logical.
c) This method is most suitable for valuation of any stock, particularly perishable g00d5.
d) In practice, this has become the most popular method.
e) No unrealised profit enters into the financial results.
f) It is avery useful method, particularly when the prices are falling.
g) It is suitable when materials are slow moving.
Demerits pices,
a) Calculation becomes complicated when prices fluctuate. In case of declining P
value of stock at cost would be higher.
b) The value of stock may not be recent one if purchases are made long back.
c) This method should not be adopted during period of rising prices. }
d) Different costs may beassigned to inventories used for the production of identical
Applicability
FIFO method is most successfully used when:
i) the size and cost of raw material is very large:
i) materials are easily identified as belonging to a particular purchase lot;
SockValuation 313
ji) not more than two or three different receipts are on material card at one time:

Prices of matenals do not fluctuate verv often so that clerical work is minimised; ana
here materials are subject to deterioration and
Average Cost Method obsolescence.
2.1.2Under this method, the stock is valued at the average of the prices at which goods are
purchased at different times.
1.
Veighted Average Price (Perpetual Inventory System)
Weighted average price is calculated by dividing the total Cost of the units in the stock by the
number of units in the stock.
Total Cost of Material on hand
Weighted Average Price Total Units on hand

This method is more effective than the simple average method and is suitable. where the
for financial account, the
pricesfuctuate frequently, for costing purposes. But for stocks valuation
hod is not suitable when prices are declining.
Weighted Average Method (Periodic Inventory System)
assigned
This method is a middle course between the FIFO and LIFO Methods. The cost to be
dividing the
n stock is decided by applying average cost to the stock. Average cost is calculated by
total cost bythe number of units.
the following formula
Under this method, weighted average cost of inventorv is calculated by
Weighted Average Cost Opening Stock + Puchanses (in )
(per unit) Opening Stock + Purchases (in units)
Average Cost per unit
Value of Closing Stock = Units in Closing Stock x Weighted
Weighted Average
Cost of Stock sold
Stock available
Sale of Goods
-Closing Stock
75- 30 = 45

(5) (10 (15) 20 25) Remaining Stock

Weighted Average Cost T10) 1l5) 20) (R25)

5+ 10 + 15 +20 +25

75
Closing Stock
Sale
=15 per unit Total Stock available for Weighted Average
Weighted Average Cost for 5 units Cost of2 units
Sx 15 = 75 2x 15 = 30

Fig. 21.3

AdvantagesThis
i)
in the
by AS-2.
method is accepted fluctuation of purchase cost of each
lor
quantity from each lot of
There is a reduction Stock is done after considering cost and
ii) Valuation of Closing
purchase. calculated each time issues are made unless new lot of
not be
IV) New issue prices need
materials is received.

DisadvantMaterial
i)
ages
i) It t requires
ii) When
tedious
COst does
calculation.
not
fluctuate
cost price.
represent actual method will give incorrect results.
considerablythis henceit becomes difficult to verifythe stock.
disappear,
prices in stores appear to be absurd due to changes in prices.
iv) Identity of
materials sometimes, may
v) Stock,
Value of Closing
314
Finanial Avunting (.
Applicability
It is applicable under the following circumstances:
i) When materials are received in unifom lot quantities.
ii) When it is difficult to identify each issue of materials.
i) When purchase prices fluctuate considerably.
8. STOCK RECORDS
Stock Recordsconsist of Bin Card and Stores Ledger.
1. Bin Card
On receipt of goods. the store keeper makes necessary entries in the document knoun as Bn
Card. Bin Card records the movement of materials from and to stores. This document is mantained ustra
by the store keeper inhis stores to assist him to controlstock. It appe ars as follows:

NYZ Co. Ltd.

Bin Card

Description of Materials Bin No.

Code No Normal Qty. to Order
Stores Ledger Folio No. Maximum Stock Level
Minimum Stock Level
Re-order Stock Level

Date Receipts Issuc Balance Goods Aud1t

on Order Notes
G.R. No. Quantity S.R. No. Quantity Quantity AS

Solutie
V

G.R. No. = Goods Received Note No. S.R. No. Stores Roquisition Not No.
Fig. 21.4: Bin Card
Ite

2. Stores Ledger
maintained in the loose leaf or card
It is maintained by the costing department. It is usually
maintained in order to ensure corrNt
type and each account represents an item of material. It is Date
follows:
stores accounting. It shows quantity and value of materials. It appears as

Stores Ledger Account

Material Maximunn Stock
Code No. Minimum Stock
Re-order Stock An
Location
Bin No.

Receipts Issue Balance

Date an. 1
G.R. Qty. Rate Value S.R. Qty. Rate Value Oty. Rate Value
No. No.

an.

Fig. 21.5

Illustration :3 (Short Problem)

Rate Amount Sale Balance Stock
No. of
Units No, of Units (in units)
Opening Stock 100 6.00 600 100
60 8.00 480 160
Purchases
60 100
Sales 110
10 5.00 50
Purchases
To find value of stock before the sale of 60 unils, weighted averuge is to be ascertaincd.
 Stock Valuation
315
Soution
1,080
The weighted average will be 160
76.75
Therefore, the stock of 100 units will be valued at the rate of 6.75 on that date.
The value of stock will be 100 x 6.75
675
Thestock of 110 units willbe valued at 675 + 50
725 + 110
76.59
Average changes only when there is areceipt or purchase.
lustration :4
Ashoka Limited has purchased and issued the materials in the following order :
Date Particulars Units Cost per Unit
Month

300 3
January Purchases 4
4 Purchases 600
January 500
6 Issues
January 700 4
January 10 Purchases
Issues 800
January 15 5
Purchases 300
January 20
Issues 100
January 23 under the
on 31lst January and state what will be the value
Ascertain the quantity of closing stock as
First in First out Method.
Solution
Method:
Valuation of Stock as per First In First Out
Stock Register
(FIFO Method)
Maximum Level
Item Minimum Level
Code Ordering Level
Balance
Bill No. Sales / Issues Amount
Purchases Quantity Rate
Rate Amount
Quantity
Date Quantityl Rate Amount 3 900
300
900 300 3 900
|Jan. 1 300 3 3,300
900 4
|Jan. 4
600 2,400
600 2,400
4
1,600
300 3 900 1,700 400
Jan. 6 500 4
200 800 4 1.600
400 4,400
1,100 4
2,800
Jan. 10 2,800 700
1.200
700 4 4
3,200 300
4 4 1,200
800 300 2,700
Jan. 15 600
300 1,500
Jan. 20 1,500
300 5
200 4 800 2,300
400 500
300 1.500
Jan. 23 100

and the stock

and sales for the five years
lustration :5 given the particulars about his purchases 2018
2017
Mr. Rajesh has 2016
valued under FIFOmethod. 2014
2015 1,20,000
1,00,000
80,000 95,000
75,000 80,000
60,00O 65,000
45,000
Sales 35,000
Purchases Accounting (Sem.-)
316 Financial Accounting (F. YB.B. L) (Sem -I)
Stock Valued under :
LIFO 8,500 6,500 9,300 10,300 11,300
5,600 7,400 9,750 8,500 10,300
FIFO
6,400 8,900 11,300 7,500 10,560
Average
Required : Prepare Trading Account for the five years under the FIFO method of valuation of stock.
Soution
Trading A/c (As per FIFO Basin)
2015 2016 2017 2018
2014 2015 2016 2017 2018 2014
2
To Opening 9,750 8,500 By Sales 60,000 75.000 80,000 1,00,000 1,20,000
Stock 5,600 7.400
To 5,600 7.400 9,750 8,500 10,300
Purchases 35,00045,000 65,000 80,000 95,000 By Stock
To Gross
Profit 30,60031,80o 17,350 18,750 26,800 65.60082,400 89,750 108,5001,30,300
65,600 82,400 89,750 1,08,5001,30,300
Illustration : 6
extracted in respect of material X.
The following particulars have been material issued on the
Stores Ledger Account showing the receipts and issues, pricing the
Prepare a
basis of Weighted Average Basis.
Receipts : 200 units at 3.50 per unit
1.09.2018 Opening Stock at 4.00 per unit
Purchased 300 units
3.09.2018 at 4.30 per unit
Purchased 900 units
13.09.2018 at 3.80 per unit
Purchased 600 units
23.09.2018
Issues:
Issued 400 units
5.09.2018
Issued 600 units
15.09.2018
Issued 600 units
25.09.2018
Solution Stores Ledger
(Weighted Average)
Maximum Level
Name of Article Minimum Level
Bin Card No. Ordering Level
Code No. Balance
Ref. Issues Amount Remarks
Receipts Quantity Rate
Ref.
Amount No. Quantity| Rate Amount
No. Quantity Rate
Date
3.50 700
200
2018 700 3.80
1,900
3.50 500
Sept. 1 Bal. 200 380
4 1,200 3.80 1,520 100 3.80
Sept. 3 300 400 4,250
1,000 4.25
Sept. 5 3,870
-

4.25
1,700
900 4.30 4.25 2,550 400
Sept. 13 600 3.98
3,980
1.000
Sept. 15 -

1,592
3.80 2,280 400 3.98
600 3.98 2,388
Sept.23 600
Sept.25
Illustration:7 material item:
transactions took place in respect of a Rate
Issues
The following (Quantity)
Receipts ()
Date (Quantity)
2.00
2019 200 2.40
March 2 250
300
March 10
15 2.60 200
March 250
March 18
March 20
at Weighted Average Rate.
Prepare a Stores Ledger pricing the issues
Stock Valuation
Sofution
317

Name of Article Stores Ledger (Weighted

Code No. Average)
Bin No.
Maximum Level
Minimum Level
Receipts Ordering Level
Date Qty. Rate
Issues
Amt. Qty. Rate
Balance
Amt. Qty. Rate Amt.
2019
March 2 200 2.00 400
March 10 300 2.40 200 2.00 400
720
March 15 500 2.24 1,120
250 2.24 560
March 18 250 250 2.24 560
2.60 650
March 20 500 2.42 1,210
200 2.42 484 300 2.42 726

Working Note
Issue Rate Calculation :
On 15th 1,120
S00
=
2.24

On 18h = 1,210 2.42

500
Ilustration :8 (Excess found in stock)
The following are the receipts and issues of coal in a factory during March 2019:
March 1 Opening stock 200 tons at 460 per ton.
4 Issued 140tons.
6 Purchased 350 tons at? 450 per ton.
Condemned due to deterioration in quantity.
Issued 80 tons.
14 Issued 210 tons.
17 Purchased 200 tons at 480per ton.
20 Issued 120 tons.
25 Purchased 180 tons at 470per ton.
28 Issued 280 tons.
month.
31 Excess found in stock 43 tons due to wrong weighing during the
tons and the reorder level is 100 tons.
The maximum level fixed is 400 tons the minimum 75
Show the Stores Ledger Account under FIFOSystem.
Solution Stock Ledger Account
(FIFO) Maximum Level
Item Minimum Level
Code Ordering Level
Bll No. IssueS
Balance
Receipts Amount Re
Quan- Rate
|GRNQuan Rate Amount MRN Quan- Rate Amt.
tity
mark
No. tity Units
Date Particulars No. tity Units
Units
200 460 92,000
2019 140 460 64,400 60
460 27,600
Mar. 1 Opening Stock 460 27,600
60
Mar. 4| Issues 350 450 1,57,500 450 1,57,500
350
Mar. 6l Purchases 60 460 27,600
450 1,57,500
350
Mar. 8 Condemned due
to deterioration
460 27,60O 450 1,48,500
in quantity 60
9,000 330
20 450
Mar. 9lIssues
318 Financial Accounting (F YBBl) (Sem -)
Mar. 14| Issues 210 450 94.500 120 450 54,000

Mar. 17|Purchases 200 480 96,000 120 450 54,000

200 480 96,000
Mar. 20| Issues 120 450 54,000 200 490 96,000

Mar.25|Purchases 180 470 84.600 200 490 96,000

180 470 g4,000
200 480 96.000
Mar.28| Issues
80 470 37.600 100 470 47.000
Mar.3 1 Excess in Stock 43 47O 20,210
143 470
67.210Exrrs
stock

N.B. : Excess found in stock on 31 March is valued at 470 as the latest purchase price. It is incurred in
receipt column.
Illustration :9 (Shortage of Stock)
Account under Weighted Average Method for
From the following information, prepare Store Ledger
the month of March 2019.
2019
March 1 Opening Stock 200 pieces at ? 2 each
Purchases :
at 2.20 each
March 100pieces
at 2.40 each
10 150pieces
20 180 pieces at 2.60 each

Issues :
March 150 pieces
11 100 pieces
21 200 pieces
there was a shortage of 10 pieces.
On 13 March, 2019; the stock verifier reported that
Soution
Stores Ledger Accounts
(Weighted Average Method)
Maximum Level
Item Minimum Level
Code Ordering Level
Bin Card No.
Balance
Issues
Receipts Rate Amount
Quantity Rate Amount Quantity Rate AmountQuantity
Date

2019 200 2 400

March 1 2.067 620
300
March 5 100 2.20 220 309.95
2.067 310.05 150 2.067
150 O09,95
March 300 2.233
March 10 150 2.40 360 4+0.03
2.233 223.30 200 2.233
March 11
100
190 2.233 42+.32
10 2.233 22.33
March 13
Shortage) 370 2.411
892.32
March 20 180 2.60 468 2.411 410.12
2.411 482.20 170
200
March 21
column as if it is issued.
Note: Shortage is recorded in Issue
Illustration :10 (Weighted Average Method) manutac-turing unit, prepdie
following details of stores receipts & issues of material "EXE" in
From the
Store Ledger using Weighted Average2000Method of valuing the issues.
November I Opening Stock Units @5.00each.
3 Issued I,500 Units to production.
Received 4,500 Units @ 6.00 each.
Issued I,600 Units to production.
Production Department (from the issues
9 Returned to Stores 100 Units by
November 3).
16 Received 2,400 Units @? 6.50 each.
Stock Valuation

19
Returned to supplier 200 Units out of the 319
20
24
Received 1.000 Units @ 7.00 each. quantity received on Nov. 4.
Issued to production 2,100 Units.
27
Received 1.200 Units @7.50 each.
29 Issued to production 2,800 Units.
(Use rates up to two decimal
Sotution places)
Stores Ledger Accounts
Item (Weighted Average Method)
Code Maximum Level
Bin No. Minimum Level
Ordering Level
Receipts Issues
Balance
Date Quantity Rate Amount Quantity Rate Amount Quantity Rate Amount
Nov. 1

Nov. 2,000 5.00 10.000O

1,500 5.00 7,500 500
Nov. 4 4.500 5.00 2,500
6.00 27,000
Nov.
5,000 5.90 29.500
1,600 5.90 9,440 3,400 5.90
Nov. 100 20.060
5.00 500
Nov. 16 3,500 5.87 20.560
2.400 6.50 15,600
Nov. 19
5,900 6.13 36.160
200 6.00* 1,200 5,700 6.13
Nov. 20 1,000 7.00
34.960
7,000 6,700 6.26 41,960
Nov. 24 2,100 6.26 13,146 4,600 6.26 28,814
Nov. 27 1,200 7.50 9,000 5,800 6.52 37,814
Nov. 29
2,800 6.25 18,256 3,000 6.52 19,358
Returned to supplier out of the quantity received on November 4. Hence the return will be priced at6.
Iustration : 11
Oil India is a bulk distributor of high octane petrol. A periodic inventory of petrol on hand is
when the books are closed at the end of each month. The following summary of information is available for
taken
the month :
Sales 79,45,000
General Administration Cost 25.000
Opening Stock :
1,00,000 litres @ 3 per litre ? 3,00,000
Purchases (including Freight Inward) :
June 1 2,00,000 litres @ 2.85 per litre
30 1,00,000 litres @3.03 per litre
Closing Stock 1,30,000 litres
30
Compute the following by FIFO and Weighted Average Method of inventory costing :
a) Value of inventory on June, 30.
b) Cost of goods sold for June.
c) Profit & Loss for June.
Soution
1, FIFOMeth od
a) Inventory on June, 30 :
Rate Amount
Litres
1,00,000 73.03 3,03,000
30,000 ? 2.85 85,500
130,000 Closing Stock 3,88,500
b) Cost of goods sold for June :
3,00,000
Opening Stock
Add : Purchases June 1 ? 5,70,000
June 30 3,03,000 8,73,000
1,73,000
3,88,500
Less :Closing Stock 3784,500
Cost of goods sold
320
Financial Accounting (F.Y.B.B.Il) (Sem. -I)
c) Profit or Loss for June :
Cost of g00ds sold
Add : General Administration Cost 7,84,500
Total Cost 25,000
Profit 8,09,500
Sales 1,35,500
2
Weighted Average Cost Method : 9,45,000
a) Inventory on June 30 :
Rate on receipt of first purchase
(1,00,000 x 3) +(2,00,000 x 2.85) 8,70,000
1,00,000 + 2,00,000 3,00,000 2.90 per litre
Balance of litres after issue of 2,70,000 litres
3,00,000-2,70,000 30,000 litres
Rate on receipt of last purchase
(30,000>x 2.90) + (1,00,000 x 3.03) 3,90,000
30,000 + 1,00,000 1,30,000 {3per litre
Closing Stock 1,30,000 litres @ 3
?3,90,000
b) Cost of goods sold :
Opening Stock 3,00,000
Add : Purchases June 1 ? 5,70,000
June 30 ? 3,03,000 8,73,000
7 11,73,000
Less :Closing Stock 3,90,000
Cost of goods sold R 783,000
c) Profit or Loss for June:
Cost of goods sold 7,83,000
Add : General Administration Cost 25,000
Total Cost 8,08,000
Profit 1,37,000
Sales 945,000
Illustration : 12
The following particulars have been extracted in respect of Material 'A'. Prepare a Stores Ledger
Account showing the receipts and issues, pricing the material issued on the basis of :
a) Weighted Average Method
b) First in First Out Method
Receipts :
i) 01-10-2018 Opening Stock 200 units at3.50 per unit.
ii)) 03-10-2018 Purchased 300units at4.00 per unit.
iii) 13-10-2018 Purchased 900 units at 4.30 per unit.
iv) 23-10-2018 Purchased 600 units at 3.80 per unit.
Issues :
i) 01-10-2018 issued 200 units
ii) 15-10-2018 issued 600 units
iii) 25-10-2018 issued 400 units
iv) 26-10-2018 issued 200 units March, 2017
Solution
Stores Ledger
Weighted Average Method
(Material A)
Date Purchases Issues Stock
Units Rate Amt. Units Rate Amt. Units Rate Amt.
2018
Oct. 200 3.50 700
200 3.50 700
3 300 4 1,200 300 4 1,200
Stock Valuation

13 900 4.30 3,870

15
1200
23 600 3.80
600 423 2.538
2.280
01
25 400 4O1 401
26 200 401 401
Stores Ledger
FIFO Method4
(Material A)
Date Purchases Issucs Stock
Units Rate Amt Units Ratt Amt Unita Rate Aet1t
2018
Oct. 1
200
200 350 700
3 300 1.200
13 900 4.30 3,870 300 1.300
1270
15 300 1.200
300 430 1.290 600 2.5A0
23 600 3.80 2,280 600 430 2.5A0
600 3.80 2.390
25 400 4.30 1.720 200 430 460
600 3.80 2.280
26 200 4.30 860 600 3.80 2.230
Mustration : 13
From the following information relating to Product M. Value closing stock on 3|-12-2018 applying
(a) FIFO, (b) Weighted Average Method
Stock (kgs) on 1-12-2018 S000 units (@ 14
Purchases (kgs)
18-12-2018 4200 units @ 13
22-12-2018 3800 units @9
Sales (kgs)
07-12-2018 1200 units
16-12-2018 2600 units
19-12-2018 1800 units
30-12-2018 S400 units
31-12-2018 200 units
November, 201
Solution
Stores Ledger (FIFO Method)
Purchase Issue Balance
Date Units Rate Amt. Units Rate Amt. Units Rate Amt.
() ) ) () )
01 Dec 5,000 14 70,000 5,000 14 70,000
07 Dec. 1,200 14 16,800 3,800 14 53,200
16 Dec. 2,600 14, 36,400 1,200 14 16,800
18 Dec. 4,200 13 54,600 1,200 l6,800
4:200 13 54,00O
19 Dec. 1,200 14 3,600
16,800 13 46,8O0
600 13 7,800
22 Dec. 3.800 9 34,200 3,600 13 +0,300
3,800 34,200
30 Dec. 3,400 13 44,200 200 13 2,o00
3,800 34,200
31 Dec. 200 13 2,600 3,800 34,200
 Financial Accounting (F. Y.B.B.I.) (Sem. -)
Stores Ledger (Weighted Average Method)
Purchase Issue Balance
Date Units Rate Amt. Units Rate Amt. Units Rate Amt.
) R) (() () {)
01 Dec. 5,000 14 70,000 14 Sol
07 Dec.
5,000 70,000
1,200 14 16,800 3,800 14
53,200
16 Dec. 2,600 14 36,400 1,200 14 16,800
18 Dec. 4,200 13 54,600 5,400 13.22 71,400
19 Dec. 1,800 13.22 23,796 3,600 13.22 47,604
sep
22 Dec. 3,800 34,200 7,400 11.05 81,804
30 Dec. 3,400 11.05 37,570 4.000 11.06 44.234

31 Dec. 200 11.06 2,212 3,800 11.06 42,022

Illustration: 14
Calculate the value of stock by applying (a)FIFO to product X (b) Weighted Average to product Y.
X
2,000 @? 28 4.000 @13
Stock (kgs) on 1-3-2019
Purchases (kgs) 1,800 @27 2,500 @14
i) On 11-3-2019
On 21-3-2019 1,700 (@ 25 2,000 @ 18
ii)
Sales (kgs) 1,300 2,500
i) On 6-3-2019
1,400 2,000
ii) On 15-3-2019 1,300
iiil) Orn 18-3-2019 700
1,100 1,700
iv) On 29-3-2019
March, 2018
On 31-3-2019 when stocks were physically verified a shortage of one unit.
Solution
For Y
Stores Ledger (FIFO Method)
Issues Balance
Receipts
Rate ) Amt. () QM Rate ) Amt. R)
Date QM Rate (Amt. () QM
2019 2,000 28 56,000
21-3 700 28 19,600
1,300 28 36,400
6-3 700 28 19,600
11-3 1800 27 48,600 1,800 27 48,600
700 28 19,600
15-3 1100 27 29,700
700 27 18,900 10,800
27 18,900 400 27
700
18-3 400 27 10,800
21-3 1700 25 42,500 25 42,500
1,700
400 27 10.800
1,000 25 25,000
700 25 17,500
29-3
For Y Stores Ledger (Weighted Average) Balance
Issues
Receipts Rate ) Amt. ) OM
Rate Amt.)
QM Rate () Amt. () QM
Date
2019 4,000 23 52,000
1,500 13 19,500
1-3 2,500 13 32,500 54,520
4,000 13.63
6-3 27,250
11-3 2,500 14 35,000 27,250 2,000 13.63
2,000 13.63 9,538
17,712 700 13.63
15-3 1,300 13.63 45,538
2,700 16.87
18-3 16,867
2,000 18 36,000 28,671 1,000 16.87
21-3 1,700 16.87 999 16.87 16,850
29-3 17 17.00
1
31-3
2018.
llustration : 1S
respect of Material X for the month of September
The following are the transactions in Units
Rate
Transactions ?2.90 per unit
Date 400 units
Opening Balance 73.00 per unit
01-09-2018 500 units
06-09-2018 Purchased 700 units
10-09-2018 Issued
Stock Valuation 323

15-09-2018 Purchased 700 units ?3.10 per unit

20-09-2018 Issued 800 units
25-09-2018 Purchased 400 units ?3.20 per unit
30-09-2018 Issued 300 units
Prepare Stores Lecdger Account As Per FIFO and Weighted Average Method. Wovember, 2014
Solution :
Stores Ledger Account [As per FIFO]
Issues Balance
Date Receipts
Rate Total ) Units Rate Total ( Units Rate Total ()
Units
Sept. 2018
400 2.90 1,160
05
3 1,500 400 2.90 1,160
06 500
500 3 1,500
10 400 2.90 1,160
900 200 3 600
300 3
200 3 600
15 700 3.10 2,170
700 3.10 2,170
200 3 600
20 100 3.10 310
600 3.10 1.860 310
100 3.10
25 400 3.20 1,280 3.20 1,280
400
100 3.10 310
30
3.20 640 200 3.20 640
200

Average]
Stores Ledger Account [Weighted Balance
Issues
Date Receipts Units Rate Total (R)
Units Rate Total ()
Units Rate Total ()
Sept. 2018 400 2.90 1160
05 900 2.96 2,660
500 3 1500 200 2.94 588
06 700 2.96 2,072 3.06 2,758
10 900
15 700 3.10 24170 3.06 2,448 100 3.10 310
800 500 3.18 1.59Q
20
400 3.20 L280 954 200 3.18 636
25 300 3.18
30

VALUATION METHOD All

9. SELECTION OFASTOCK studied different methods of valuation of stock.
chapter, we have accountancy. Different
In the earlier part of this of stock are according to the principles ofmay be the method of
these methods of valuation methods of valuation of stock. Whatever be eftected in
Dusinessmen adopt different consistently followed every year. No change should
Valuation adopted, it should be unless it is absolutely necessary and it is justified.
method of valuation of
stock
he method of valuation of consider a number of factors while selecting a
A businessman has
to
Stock. The important factors are given below :
valuation should be convenient to the businessman.
The method of stock understand & administer.
1. Convenience: methodof stock valuation should be simple to customs and traditions of
2. Simplicity : The be as per the
method of stock valuation should
3. Customs : The determines the tax liability. If
business in the country. stock valuation
Income tax:The method of profit will be less and therefore, the
4 Suitable for
particular method is less the
per a
the stock valued asreduced to that extent. by the legislation in the
tax liability will be be prohibited
provisions : The method adopted should not more,
S. Legal than what it is, the profit will be
financial
country. valued is more or other
Window dressing : If the stock for borrowings from banks of change or sale.
6. look attractive for the business in the event
showing the business
more consideration
institutions, to claim
practice.
This is not a good
324
Financial Accounting (F YBB) (Sem
10. EXERCISES
10.1 Theory Questions
Descriptive Questions :
What are the objectives of stock valuation?
2 Explain different methods of inventory valuation.
3 What factors are to be considered in selection of stock valuation method?
4. Explain the advantages and disadvantages of perpetual Inventory system.
5. Distinguish between FIFO & WAM. March, 2013

1. Write Short Note on:

1. FIFO (Refer Page No. 311) November, 2016
2 Weighted Average Method
3 Periodic Inventory System
4. Perpetual Inventory System
Store Ledger
6 Bin Card

10.2 Objective Questions

Multiple Choice Questions :
Market Value is Discounted present value,
1.
realisable value, (ii) Net realisable value less profit, (1ii)
(i) Net
(iv) None of the above
cost in the closing stock is
2 The method reflects latest purchase Average, (iv) None of the above
Weighted
() FIFO, (i) LIFO, (iii) continuously is
3 The system which keeps records (d) None of the above
(ii) Physical,
(i) Perpetual, (i) Periodic, market value whichever is lower as
per
Stock is valued at cost or at Entity Concept
4
concept, (ii) Cost concept, (ii) Matching concept, (iv) verified is
() Realisation warehouse is physically
each and every item in the Inventory system,
5. The system in which
system, (ii) Physical Inventory system, (iii) Retail
(i) Perpetual Inventory
(iv) None of the above
governs inventory valuation is
6 The standard which (iv) AS6
AS 10,
(i) AS 3, (ü) AS2, (iii)
Carriage on purchases is from the cost of inventory, (iii) Multiplied by the
7. Deducted
of inventory, (ii)
(i) Added to the cost None of the above
(iv)
cost of inventory, fluctuations in prices are averaged out
(iv) None of the above
8 The system in which Method, (ii) FIFO Method, (ii) LIFO Method,
() Weighted Average for stock valuation is
applicable Cost
9 The concept Realisation, (ii)Conservatism, (iv)
i) Consistency, (i) valuation is
Concept applicable for inventory Conservatism, (iv) Matching
10. Realisation, (iii)
(i)Consistency, (ii) concern include above
Inventory of atrading only (ii)WIP, (iv) None of the
11. (i) Finished Goods
(i) Raw Material, inventory is valued
periodic Inventory system,Continuously, (iv) None of the above
12. Under
(ii) Yearly, (iii) inventory valued
(i)Periodically, inventory system, None ofthe above
13. Under perpetual (i) Yearly, (ii) Half yearly,(iv) the above
(i)Continuously, is undervalued effect on profit, (iv) None of
14. When closing
stock overstated, (ii) No
understated, (ii) Profit is theabove
(i) Profit is overvalued effect on profit, (iv) None of
stock is understated, (iii) No
15. When closing (ii) Profit is the above
overstated,
())Profit is manufacturer includes Finished Goods, (iv)All of
a WIP, (iii))Stock of purchased
16. Inventory ofRaw Materials., (ii) Stock of are the first units that were
(i) Stock of that goods sold the above
this method it is assumed Average method, (iv) None of
17. Under LIF0, (ii)
Weighted
(i)FIFO, (ii)