AC120 lecture 22 Completion of VAT Accounting for stock – SSAP 9

Example 1 Organisation A is registered for VAT Sales of goods on credit to J Bloggs €100 Sales of goods for cash to J Bloggs €200 Purchases of goods on credit from N Maguire €50 Purchase of fixed asset €1,000 Amounts don’t include VAT. Applicable VAT rate is 10%.

Example 2 Organisation A is not registered for VAT Sales of goods on credit to J Bloggs €100 Sales of goods for cash to J Bloggs €200 Purchases of goods on credit from N Maguire €50 – N Maguire is registered for VAT! Purchase of fixed asset €1,000 – supplier is not registered for VAT Relevant amounts don’t include VAT of 10%

Valuation of stock SSAP 9 – Accounting for stock and long term contracts Issued in 1975 and revised in 1988 Valuation of stock for inclusion in the final accounts as part of cost of goods sold and as an asset on the balance sheet

What is included in stock? Goods or other assets purchased for resale Consumable stores Raw materials for incorporation into products for resale Products at intermediate stages of completion (work in progress)

Valuation of stock SSAP 9 states that stock must be valued at the lower of cost and net realisable value (NRV) Comparison of cost and NRV should be on an item by item basis or of groups of similar items.

Example of valuation principle CostNRV Item X3,0004,500 Item Y2,0003,000 Item Z2, Total 7,0008,000

What do we mean by ‘cost’? Cost = cost of purchase plus cost of conversion Cost of purchase –Invoice price –Import duties –Transport costs (carriage inwards) –Handling costs –Less trade discounts, rebates and subsidies

What do we mean by ‘cost’? Cost of conversion (manufacturing environment) –Direct costs specifically attributable to units of production –Production overheads in respect of production materials and labour Parker Mechanical Parrots example