Closing stock

Essexgal

Hi,

I have been told their are two methods for calculating closing stock.

I have identified one as using a trading account to work out the closing stock based on other info we have.

Please could someone tell me the other method?

Thanks

visha

I belive they mean you to use either Mark-up or Margin.

see this link http://www.aat.org.uk/forums/showthread.php?t=17975

numberjunky

Here's an example from a handout I got a few weeks ago.

Calculating stock losses

When stock is stolen, destroyed or otherwise lost, the loss must be accounted for. If the value of the lost stock is not known it can be calculated by references to the business's mark-up on cost

eg:

A company sells fashion clothes. On Jan 1st 2007 it had stock in trade which cost £7345. During the 9 months to 30 Sept 2007 the business purchased goods from suppliers costing £106420. Sales during the same period were £154000. The shop marks up all its stock by 40% on cost. On 30 Sept 2007 there was a fire which destroyed most of the stock. The only stock not damaged had cost £350.

a) Calculate Cost of goods sold:

Sales for the period (140% of Cost of Goods) - 154000
Cost of goods sold (Sales x 100/140) - 110000

b) Calculate cost of goods lost in fire:

Opening stock - £7345
add Purchases - £106420
Cost of goods available for sale = £113765
Less cost of goods sold - £110000
Cost of stock unsold £3765
Less closing stock (the only stock left!) £350
Cost of stock lost must be - £3415

Hope this helps.
You need to read up on Mark up on cost & Gross profit margin (GPM)
It's something that still makes me think but with mark up, treat the cost of sales figure as 100% and in this case, the mark up is 40% so the sales is 140%. With GPM, the Sales figure is the 100% so if the GPM is 35% the COS will be 65%.

eg: Sales is 240000 and GPM is 40%. Cost of sales must be 60%
240000 x 60% = 144000.

It's all very useful for finding missing stock figures and it does crop up.
Good luck (I'm taking my FRA in June too)

Essexgal

Hi,

Thanks for your help, Mark up/Margin is the method we have learnt but im not sure about another method.

visha

If you are talking of the two methods of working out the value of closing stock the it is Mark-up and Margin.

But if you are talking about valuing the closing stock, then for AAT Intermediate it is LIFO, FIFO or AVCO.

Don't forget you still have to apply SSAP9, and therefore it is likely to be FIFO or LIFO , but from Inland Revenue's perspective it has to be FIFO.