FINANCE AND ACCOUNTING

Finance and Accounting



Finance and Accounting

UW's forecast accounts for the year ending 30th April 2012:

Without changing stockholding policy or including May sales to China.

 

Apr-12

$000s

Turnover

13,200

Cost of Sales

6,150

Indirect Expenses

3,000

Net Profit

4,050

Changing stockholding policy but excluding sales to China.

 

Apr-12

$000s

Turnover

13,200

Cost of Sales

4,945

Indirect Expenses

3,000

Net Profit

5,255

 

Units (000s)

Value (£000s)

Per Unit Cost

AVCO

Opening stock

400

3000

7.5

 

Purchases:

 

 

 

 

May

200

2000

10

 

July

100

800

8

 

September

200

2000

10

 

December

100

900

9

 

March

300

2350

7.83

8.72

Closing stock

700

6105.56

8.72

 

Total

2000

4944.44

2.47

 

Without changing stockholding policy but including sales to China.

 

Apr-12

$000s

Turnover

15,840

Cost of Sales

7,000

Indirect Expenses

3,000

Net Profit

5,840

 

Units (000s)

Value (£000s)

Per Unit Cost

Opening stock

400

3000

 

Purchases:

 

 

 

May

200

2000

 

July

100

800

8

September

200

2000

10

December

100

900

 

March

300

2350

 

China May Sales

120

1000

 

Closing stock

580

5050

 

Total

2000

7000

 

Changing stockholding policy and including sales to China.

 

Apr-12

$000s

Turnover

15,840

Cost of Sales

6,302

Indirect Expenses

3,000

Net Profit

6,538

 

Units (000s)

Value (£000s)

Per Unit Cost

AVCO

Opening stock

400

3000

7.5

 

 

 

Purchases:

 

 

 

 

 

 

May

200

2000

10

8.75

8.75

 

July

100

800

8

16.75

8.375

 

September

200

2000

10

18.375

9.1875

 

December

100

900

9

18.1875

9.09375

 

March

300

2350

7.83

16.9271

8.46354

8.77396

China May Sales

120

1052.4

8.77

 

 

 

Closing stock

580

5800

10

 

 

 

Total

2000

6302.4

3.1512

 

 

 

Comment on the validity of the Financial Director's proposed treatment of stock valuation and revenue recognition, referring to relevant International Accounting Standards as appropriate.

Average Cost method

Average Cost method for inventory valuation is a method of valuation of their expenditures, consisting in its accounting using the weighted average price of purchase. This method can be used for disbursement of materials, goods and products. Inventory valuation methods are important due to the fact that the prices of purchased materials and overall production costs change over time. Often a situation where at the warehouse inventory units were taken at various prices. Issuing from the warehouse store, the company has to decide at what price to post its release. If the company does not use specific identification inventory method, it is not able to accurately identify which part of them was adopted after the price. He knows just how much inventory was taken at a given price (Sudan, 2009, p. 87). Enterprises adopt a particular pricing model so, for example, the weighted average method for cadastral. According to the weighted average method, at the time of inventory from the warehouse enterprise edition accounts for the value weighted average price of goods held in stock.

Average Cost method is quite popular and often used in accounting. Suffice it works well for stocks whose prices are not subject to trends but rather vary in certain price range. The method of weighted average smooths out these variations, thereby reducing the company's profit fluctuations. This is the plus of this method in comparison with the FIFO or LIFO. Weighted average method is permitted by the cadastral accounting and tax rules in most countries. The method of valuation of stocks using the stock value at the date of closure are the same as the value adopted in the cost of their own sales (Fedor, 2006, p. 47). This method does not reflect the actual cost method, because most companies usually sells old stocks first, stopping the latest. Weighted average cost of inventories is a compromise between competing methods FIFO and LIFO.

The weighted average method is to evaluate the outputs of stock by using ratio of acquisition costs with the quantity purchased without taking into account the entry and exit of the goods available in the inventory. Determining the cost of entry for stocks The notion of stocks in relation to international standards. IAS 02 indicates what is meant by the term stocks:

• Inventories are ...