Stock Valuation

As we approach our financial year end the usual subject of stock valuation
has arisen and this has thrown up a few questions:

A few facts.

1. We are UK based (this may make a difference ?)
2. We are a trade company i.e. we only buy & sell goods, we do not
manufacture.
3. This is our first year end on BPCS.
4. Our old way of stock valuing was based on average price, calculating
average price as

(Old SOH * Old Price) + (Delivery Qty * Delivery Price)
----------------------------------------------------------------------------
--
                  (Old SOH + Delivery Qty)

So if you had say 100 pcs valued at £1.00 and the received £100 pcs invoiced
at £1.50 the new valuation price would be

(100 * 1) + (100 * 1.5)
-------------------------------       =     £1.25
      (100 + 100)

A valuation report was ran monthly and the resulting figure was the asset
value of stock.

5. With BPCS came standard pricing and full integration between stock and
accounts (a first for us).
6. We set Standard Price in the system equal to our closing stock values on
the old system so that in asset terms, closing stock = opening stock.
7. We have ran with the same standards ever since (now 7 months).

My questions.

1. For a trade company what ideally should standards be set to.  Indeed is
there an ideal ?

Due to our history we would have liked average price but fully understand
that that makes no sense as the price needs to be static(ish).  As we see it
there are 4 options;
a. Replacement Cost (taken from say vendor quote * a known exchange rate)
b. Replacement Cost taking into account acquisition costs (primarily
freight)
c. Last years closing price, i.e. end of last years asset value
d. A figure invented by Purchasing / Sales

2. At year end for balance sheet purposes is a valuation based on standards
seen as reasonable in financial terms ?
Depending on which method you use to derive standards, the potential figures
could be significantly different.
If not is the only alternative to use the system cost set 1/0 - actual cost.
? or is there a better way of getting a stock value using PPV perhaps ?

3. In a stable economic climate with few currency changes how often should
standard prices be reviewed ?
I think we will aim for quarterly next year.

Regards
Mark Curtis
IT Director
Hafele U.K. Limited
Direct : +44 (0)1788 548557
Tel    : +44 (0)1788 542020
Fax    : +44 (0)1788 541860
email  : mailto:mark.curtis@hafele.co.uk
Web    : http://www.hafele.co.uk


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