Inventory - STOCK VALUATION 1. Give the meaning of stock or...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
STOCK VALUATION 1. Give the meaning of stock or inventory. The term stock means the tangible property which is held either for sale in the ordinary course of business or for use in the process of production or consumption in the process of production of goods for sale. Thus stock (inventory) consists of the following: a) Raw materials b) Work-in-progress c) Finished good 2. Explain the importance of stock valuation. Valuation of stock is important due to the following reasons: a) Proper determination of profit: Proper determination of profit depends upon the proper valuation of stock. If stock is over valued it leads to overstatement of profit, if it is undervalued, it leads to understatement of profit. So, determination of correct profit requires proper valuation of stock b) Correct financial position: Stock is the major portion of current assets. If the stock is not shown at its correct value in the balance sheet, it will give wrong idea about the liquidity position of the concern. c) For proper managerial decision: For taking correct managerial decision, the management uses ratio analysis as its tool. So, calculation of different ratios like current ratio, stock turnover ratio requires correct closing stock figure. 3. What are the two systems of stock taking? There are two systems of stock taking. They are i) Periodic Inventory System ii) Perpetual Inventory System i) Periodic Inventory System: Under this method the value of stock is ascertained by physical counting of the stock at the end of a particular period, usually once in a year. It is a simple and economical method of stock taking and can be adopted by small concerns. ii) Perpetual Inventory System: Under this system detailed records of every receipt and issue of stock are maintained by the stores controlling department. The record so maintained reflects the physical movement of stocks and their balances. So, physical stock can regularly be verified with the stock records. This method is scientific and stock in hand on a particular date can be ascertained without much difficulties. 4. Bring out differences between Periodic and Perpetual Inventory Systems Points Periodic Inventory System Perpetual Inventory System Basis It is based on physical stock taking It is based on records maintained Availability of information It provides data periodically It provides data continuously Cost It is a simple & economical method It is expensive as detailed records are to be maintained Control It does not provide basis for effective stock control It provides basis for effective stock control Suitability Suitable for small concerns Suitable for medium & large concerns
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
5. What are the different methods of stock valuation? The important methods available for valuing the stock are:
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/27/2009 for the course ACCT 212 taught by Professor Partridge during the Summer '09 term at DeVry Cincinnati.

Page1 / 6

Inventory - STOCK VALUATION 1. Give the meaning of stock or...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online