Accounting Standards for Inventory Valuation and Impairment
Buying Valuation Rules (Rule 10 of the PGC and 12 of the PGC for SMEs)
- All expenses for shopping, whatever their nature, even when VAT is not recoverable, will be charged to account 600 (purchases of goods), increasing the purchase price.
- The financial costs (interest) can only be attributed to the purchase price if you are with conviction, not exceeding one year and not have a contractual interest rate. If you are long term, applies the rules of valuation of assets, therefore, be charged the cost of the stock, provided that accrued before the stocks are able to be sold.
- All discounts, whatever their nature, if they are included in the invoice, will reduce the amount charged to the 600 (Procurement of goods). Now if such discounts are not included in the invoice, but in a later bill, record, respectively, depending on the nature of discount, in the accounts 606 or 608 or 609.
Sales Valuation Rules (Rule 14 of the PGC and 16 of the PGC for SMEs)
- All discounts, whatever their nature, if they are included in the bill of sale, will reduce the amount of credit the account 700 (sales of goods). Now if such discounts are not included in the bill of sale, but in a later bill, record, respectively, depending on the nature of discount, in the accounts 706 or 708 or 709.
- Note that the expenditure does not occur as sales in the shop which bore all the expenses. In the case of sales, these expenses are charged to the respective expense accounts of Group 6.
Accrual Principle
The effects of transactions or economic events are recorded when they occur, with any exercise to which the annual accounts concerning expenditure and receipts involving the same, regardless of the date of payment or collection.
Depreciation
Depreciation is the experienced loss of value of assets as a result of the passage of time. Depreciation is due to physical causes, techniques and / or the depreciable base is the economic difference between the purchase price (cost of purchase plus costs associated with this) and the residual value.
Useful Life
Period during which a company expects to use the assets efficiently or the production consists of numerous units that the company expects to derive from the asset.
Residual Value
Estimated that the entity could get from the sale of assets at the end of its useful life.
VAT
The operations of purchase and sale are subject to legal regulations on taxation. The tax imposed on the transactions is the value-added tax. It is an indirect tax, that is, taxpayers do not pay it directly to finances but it is paid by employers to buy their goods and these enter the VAT. HP has to pay for the purchases of raw materials, services received, etc. Passed on taxes have to be charged by a company to its customers for sales and later made.
Net Realizable Value
Net realizable value of an asset is the amount the company can get for its sale in the market, in the ordinary course of business, less the estimated costs necessary to carry out, as well as in the case of raw materials and current products, the estimated costs necessary to complete its production, construction and manufacturing.
Impairment of Inventories
The stock may experience losses. Under the principle of prudence, accounting records certain losses as soon as they are known. In this line, the standard of recording and valuation 10th of the PGC, paragraph 2, states: When the net realizable value of stocks is less than its purchase price or production cost, appropriate corrections were made values recognized as an expense in the profit and loss account.
If the circumstances that caused the correction of the value of the stocks have ceased to exist, the amount of the correction shall be subject to reversal recognized as income in the profit and loss account.
When the market value of stocks is less than its purchase price or production cost, there is a situation of loss of value. Whenever there is this circumstance must provide the appropriate correction value.
Example:
PC 9000 > VNR = 6750 then we have an impairment in value. There is a potential loss of 2,250 € to be accounted for using the search timely reflected deterioration. However, before touching the deteriorating merchandise depreciation year, the company should eliminate the loss reflected the previous year, amounting to € 1,500. In this way, the company held seats in the journal are:
Must have Libro Diario
1. For the elimination of prior year impairment
1500 (391) Impairment of stocks at (793) Reversal of impairment of existencias1.500
2. With the current annual allocation
2250 (693) Impairment of stocks at (391) Impairment of existencias2.250