The Sage Course Companion on Financial Accounting is an accessible introduction to the subject that will help readers to master key concepts and enhance their thinking skills in line with course requirements. It provides support on how to revise for exams and prepare for and write assessed pieces.
UK accounting standards refer to stock whereas international accounting standards refer to inventory. However, both terms have the same meaning. Calculation of an appropriate stock valuation is crucial for two reasons:
- It determines the valuation of the closing stock in the year end balance sheet. This will affect the total for reported assets.
- [Page 30]It determines the amount that will be charged as cost of sales in the profit and loss account. This will affect the level of reported profit.
The ‘lower of cost and net realisable value’ rule means that we can normally expect to value closing stock according to its original cost (that is, the amount that was paid for it). Net realisable value would only be used if some deterioration had taken place, ...