Adjustments for FRA

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
can anyone help, i cant remember what to do to make this adjustment:

Stock during the year has been damaged and has now been given a lower market value-

where do the DEBITS and CREDITS go

Please help
Jemma

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Adjustments for FRA

    The basic rule is that stock must be valued at the lower of cost and net realisable value. Thus if it has been damaged and is to eb sold at below cost we need to value it at the new reduced selling price (as that is lower).

    However, remember that closing stock does not appear in the initial trial balance - it is an entry that we make when producing teh financial statemnents at the end of the year. (You should remember that you enter it twice into the adjustment columns of the ETB. Therefore ther are NO debits and credits to worry about. Just enter the stock at the revised value in the usual way.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Adjustments for FRA

    I think thats what I did, I just reduced the closing stock figure, but it felt wrong not to show damaged goods as an expense!!!
    Thank you for that :lol:
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Adjustments for FRA

    By reducing the closing stock value you automatically inflate the cost of sales, so in fact you are showing the damaged goods as an expense
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Adjustments for FRA

    Thank you for your help :D

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