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Understanding Stock Valuation Methods and Costs - AC120 Lecture Example

Learn about stock valuation methods including FIFO, LIFO, and AVCO, and how to establish Net Realizable Value (NRV) with real-life examples. Reference: Wood, Chapter 28.

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Understanding Stock Valuation Methods and Costs - AC120 Lecture Example

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  1. AC120 lecture 24 • Stock valuation methods • SSAP 9 • SSAP 9 long term contracts material not examinable for AC120

  2. Example • January: Bought 10 units at €30 each • April: Bought 10 units at €34 each • May: Sold 8 units for €50 each • October: Bought 20 units at €40 each • November: Sold 24 units for €60 each • What is the cost of the stock on hand at year end?

  3. Methods of stock valuation • First in, first out (FIFO) • Last in, first out (LIFO) • Average cost (AVCO)

  4. Establishing NRV • Actual or estimated proceeds of sale Less • All further costs to completion • All costs to be incurred in marketing, selling and distribution that are directly attributable to the item(s) in question

  5. References • Wood, chapter 28

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