Stock Valuation

Methods of stocks valuation are devices which aim to deal with some of the problems. W shall consider some of those commonly adopted.

FIRST-IN-FIRST OUT (FIFO) METHOD.

This method assumes as the name indicates that items of stock were sold during the year in the order in which they were originally bought. Goods that were bought first (FIRST-IN) were those that were sold first, or issued first for production (FIRST-OUT). It follows then that items of closing stock will be made up of those bought most recently.

LAST-IN-FIRST OUT (LIFO) METHOD.

This takes the opposite view to the FIFO method and assumes that goods sold during the period are first taken from those most recently purchased. On the basis of this assumption, the closing stock of goods is taken to comprise items bought first.

WEIGHTED AVERAGE COST METHOD.

This simply uses the weighted average method to value closing stock and cost of goods sold.

ASSIGNMENT

1.       Explain why the valuation of stock is necessary in a business.

2.       Outline and discuss the common problems associated with stock valuation.

3.       Using the following date, calculate and show

          (a)     The value of closing stock

          (b)     The cost of goods sold under

          (i) FIFO        (ii) LIFO and           (iii) Weighted average cost method of stock valuation.

          Opening stock: 10 units valued at N20 each.

Purchases

January 20 units at N40 each

March 20 units at N34 each

Sept 40 units at N40 each.

          Sales

          April 16 units for N46 each

December 48 units for N56 each