Accounting standards

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vamsi (Querist)
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19 September 2016 Why stock movements are not recorded in accounting books?Why inventory valuation is done as a year end activity? Why inventory is disclosed at Market value or Cost whichever is less? If market value of inventory is less than “cost” how does you record that difference?

Amol S Joglekar

Amol S Joglekar (Expert)
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19 September 2016 A. Who said, stock movement is not recorded? It is very much registered in Stock Register.
B. Gone are the days of valuation of inventory as on the year ending date. In ERP ...(SAP etc) the inventory is linked and mapped. So every day valuation is very much available in the computer system
C. Cost or market value whichever is lower...It is a CONSERVATIVE principle of accountancy. And it is quite logical too......say for example a mobile handset seller...having Iphone 5.... bought 2 years ago at say 45000.....today getting sold at 20,000....No point is sowing the inventory at 45000...isnt it?

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vamsi

vamsi (Querist)
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19 September 2016 thank you sir and how we record difference if market value is less than cost

Amol S Joglekar

Amol S Joglekar (Expert)
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19 September 2016 there could be 2 schools of thoughts
A. Closing Stock to be valued at market price, since it is lower.....this come by way of adjustment entry, which when transferred to Profit 7 Loss account will automatically take care of Gross profit
B. Show the Closing stock at Cost +Show by separate line item in the profit & Loss account.....loss on account of market price being lower than cost price. (This will keep the Gross profit more or less intact)

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