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Accounting
Stock Valuation Systems Tutorial Gr 12
How to study this section
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2

• Practice the examples, without looking at the
answer
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If you made a mistake you should try it again
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The value of closing stock will thus be
at the actual / latest prices purchased
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Contents
1
2
2
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2
3

Periodic Stock - Brief revisit of Grade 11
Stock Evaluation as part of the Periodic Stock Systems
First In First Out (FIFO)
Weighted Average
Exercises

1
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This means that you do not calculate and record cost of sales for every transaction; but that cost of sales is
a once off calculation at the end of a specific period, such as a financial year
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You've
purchased 9
apples, but had
to return 6 bad
apples

Cost of Sales calculation
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During the year you purchased another 3 apples
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=

At the end of the year you do a stock count and
find that you have one apple left
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The formula to calculate Cost of Sales will now be as follows:
Opening Stock
(2 apples X R100)
R 200
+ Net Purchases
(3 apples x R100)
R 300
= Stock available
(5 apples x R100)
R 500
- Closing Stock
(1 apple x R100)
(R 100)
= Cost of Sales
(4 apples x R100)
R 500

remember that cost of sales is the cost price of units sold
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You can also calculate closing stock if cost of sales is given
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1 FIFO method to calculate the value of closing stock
This method is best illustrated by means of an example
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Information:
1 January 2011

You have 50 apples left at the start of the financial year, purchased in December 2010
at R10 each
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1 Calculate the value of the closing stock according to the FIFO method
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2 Calculate the gross profit according to the FIFO method
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The oldest basket had 50 apples at R10 each and the newest
basket had 30 apples (45 purchased - 15 returned) at R12 each
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If you sell 60 apples you will take 50 apples from the old basket and 10 apples from the new basket
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The 20 apples left in the new basket is valued at their actual cost price namely R12 each, i
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R240
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Cost of Sales can also be calculated as follows:

Opening Stock
+ Net Purchases
= Stock available
- Closing Stock
= Cost of Sales

R 500
R 360
R 860
(R 240)
R 620

purchases R540 - returns R180 =net purchases R360

2
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Example 2
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Purchased 45 apples at R 12 each
Returned 15 bad apples purchased on 15 June 2011
Sold 60 apples at R18 each

15 June 2011
16 June 2011
20 July 2011
Required:

1
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1
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Solution
Please note that you cannot simply take the average price of trading stock purchased
as: (R10 + R12) ÷ 2 = R11
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It is similar to when your tests and tasks count a different percentage to calculate your
portfolio mark
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1 Value of Closing Stock
Step 1: Calculate the weighted average
50 apples at R10
Opening stock
Net Purchases
30 apples at R12
Total for 80 apples purchased is:
Weighted Average:
R860 ÷ 80 apples

R 500
R 360
R 860
R 10
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75
X
20 apples (units)
=
R 215
1
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75 x 60 apples sold = R 645
And gross profit:
Sales (60 x R18)
- Cost of Sales
= Gross Profit

R 1 080
(R 645)
R 435

Conclusion:
You may have noticed that the same example was used to illustrate both FIFO and weighted average
stock systems
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The weighted average system is thus more prudent
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Exercises
Do the following exercise and compare your answer to the solution given at the end
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1 Value of closing stock according FIFO method
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2 Gross profit according to FIFO method
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3 Value of closing stock according to weighted average method
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4 Gross profit according to weighted average method
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1 Value of closing stock according FIFO method
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2 Gross profit according to FIFO method
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3 Value of closing stock according to weighted average method
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4 Gross profit according to weighted average method
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1 Value of closing stock according FIFO method
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2 Gross profit according to FIFO method
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Once its empty you take
the other 8 from the new basket to
give your customer 11 apples
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3 Value of trading stock according to weighted average method
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02
Step 2: Calculate number of apples (units) closing stock:
Opening Stock
17
+ Net Purchases (15 - 2)
13
= Stock available
30
- apples sold (14 + 11)
(25)
= closing stock in apples (units)
35
Step 3: Calculate: value of closing stock:
Weighted average x Closing stock in Units
=
R10
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70
3
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(14 XR20) + (11 X R20)
R 500
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02)]
(250
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50

The end

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R 50
R 248



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