European Module : Interactive European Professional Accountancy.
THEME 3. FRAMEWORK ON STOCKS
STATEMENT OF OPERATION
 First day of the year, stock goods, purchased for resale ....…= 1.000 items x 1.000 Francs / piece
 Purchases invoice ..............................................................…= 500 items x 1.100 Francs / piece
 Sales invoice.......................................................................…= 750 items x 2.000 Francs / piece
 Last day of the year, stock goods, purchased for resale ....…=
750 items
 Items completely outdated ....................................................= 100 items
 Market price:
 A) .............................................................= 1.200 Francs / piece
 B) .............................................................=
NOTE: All prices are net from VAT
WORK REQUIRED
Book all data according to all possible valuation methods.
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800 Francs/ piece
European Module : Interactive European Professional Accountancy.
1. PERIODIC INVENTORY METHOD
Being unknown both the stock value and the cost of goods sold during the exercise, their knowledge
will only be possible at the end of the year, after direct inventory of goods unsold.
Being omitted this information on the statement of operation, we’ll introduce it, as work hypothesis:
 Ending inventory (physical count) = 750 items x 1.000 Francs / piece
Journal entries, accordingly
1
First day of the year
...
...
...
371
Stocks of goods for resale
...
...
...
Several (credited) accounts
1.000.000
...
...
opening entry accounts
2
During the year
607
Purchase of goods
550.000
113.300
44566
(1)
State, VAT on other goods ands services
401
(2)
Suppliers
663.300
Purchase of goods
3
During the year
411
(2)
Clients
707
(1)
Sales of goods for resale
44571
State, VAT collected
Sales of goods
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1.809.000
1.500.000
309.000
European Module : Interactive European Professional Accountancy.
4
End of the year
4.1 6037
(3)
371
Variation stocks goods for resale
1.000.000
Stocks of goods for resale
1.000.000
Balance of the open year stocks.
4.2 371
6037
Stocks of goods for resale
(3)
700.000
Variation stocks goods for resale
700.000
Constitution of the end year
stocks. (150 x 1.000) + (500 x
1.100)
4.3 B) 68173
3971
(4)
Provisions of the exercise - depreciation
of goods
Provisions for depreciation of goods for
resale
180.000
180.000
To establish the provision
Remarks
(1)
Normal VAT rate, in France, is 20,6 %
We are assuming all purchases and sales are on credit. When the payment is done, credited accounts
are on Bank Account.
(3) For the variation of the stocks during the year, you must first balanced the open year stock and
constitute the end year stock. A load account is used : 6037 in this case. The 100 items non saleable
are included in this load. For the evaluation of the stock, we use here the first in first out. It is
possible in France to use an average cost method.
(4) Historical cost : (150 x 1.000) + (500 x 1.100) Francs = 700.000 Francs. For the evaluation of the
stock, we use here the first in first out. It is possible in France to use a medium cost evaluation. If
we use the average cost method, the value of the stock at the end of the year should be :
Historical cost : ((1.000 x 1.000) + (500 x 1.100))/1.500 x 650 = 671.666 Francs.
In case A/ Current cost 650 x 1.200 = 780.000 francs. Nothing to do according to the prudence
principle.
In case B/ Current cost 650 x 800 = 520.000 Francs. A provision must be made.
(2)
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European Module : Interactive European Professional Accountancy.
Partial trial balance (after those journal entries and before determination of income)
Code
Numbers.
Accounts
...
...
411
Clients
401
Suppliers
44566
State, VAT on other goods and services
(6)
44571
State, VAT collected (6)
607
Purchases of goods for resale
707
Sales of goods for resale
371
Stocks of goods for resale
6037
Variation stocks of goods for resale
68173
Provisions of the exercise - depreciation
of goods case B
3971
Provisions for depreciation of goods for
resale
Cumulative
Debits
Credits
Francs
Balance
Debtor
Creditor
1.809.000
1.809.000
663.300
113.000
663.300
113.300
255.000
550.000
1.700.000
1.000.000
180.000
255.000
550.000
1.500.000
1.000.000
700.000
1.500.000
700.000
300.000
180.000
180.000
180.000
(6) VAT accounts should be equilibrated each month.
(7) Results analysis
Gross income
Sales
Periodic
inventory 1.500.000
2.
CGS- Cost of
goods sold
Other costs
Value
% on sales
% on CGS
lNCOME
750.000
280.000
750.000
50%
100%
470.000
PERPETUAL INVENTORY METHOD
Using, successively, the following valuation criterions
1. Weighted - average method - WA
2. First in first out method - FIFO
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Net
European Module : Interactive European Professional Accountancy.
WA
Inputs
Outputs
Unit
Cost
Stock balance
Date
Operations
Units
Cost
Value
Value
Units
Cost
Value
jan./01
Initial inventory
1.000
1.000 F
1.000.000
1.000
1.000 F 1.000.000
Year
Purchases
500
1.100 F
550.000
1.500
1.033 F 1.550.000
Year
Sales
Dec./31
Shortage (outdated)
750
1.033 F
775.000
750
1.033 F
775.000
100
1.033 F
103.333
650
1.033
671.667
FIFO
Inputs
Units
Cost
Outputs
Date
Operations
Value
Units
Cost
jan./01
Initial inventory
Year
Purchases
Year
Sales
750
1.000
Dec./31
Shortage (outdated)
100
1.000
Stock balance
Value
Units
Cost
Value
1.000
1.000 F
1.000.000
1.000
500
750.000 250
500
100.000 150
500
650
1.000 F
1.100 F
1.000 F
1.100 F
1.000 F
1.100 F
1.000.000
550.000
250.000
550.000
150.000
550.000
700.000
1.000 1.000 F 1.000.000
500
1.100F
550.000
LIFO (possible in French accountancy but not accepted for taxation : in practice rarely used)
Inputs
Date
Operations
jan./01
Initial inventory
Year
Purchases
Year
Sales
Dec./31
Units
Cost
Outputs
Value
Units
Value
1.000 1.000 F 1.000.000
500
1.100 F
550.000
Units
Cost
Value
1.000
1.000 F
1.000.000
1.000
500
1.000 F
1.100 F
1.000.000
550.000$
500
250
1.100
1.000
550.000
250.000
800.000
750
1.000 F
750.000
100
1.000
100.000
650
1.000 F
650.000
Shortage (outdated)
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Cost
Stock balance
European Module : Interactive European Professional Accountancy.
TECHNICAL FORM OF THEME 3: FRAMEWORK ON STOCKS
1) General overview.
According to the French accounting plan, stocks are a whole of goods or services that are used during
the exploitation cycle. Theses goods should be :
 sold without transformation or after transformation,
 destroyed with the first utilisation.
2) Inventory of the stocks.
The final stock include raw materials, other materials, finished products, half-finished products and
goods for resale that the firm is owner.
3) Valuation of the stocks.
4) The stock is evaluated at :
 the cost of acquisition : price of purchase and additional costs,
 the cost of production : acquisition costs of the materials used and direct and indirect production
loads.
In France, only two methods of evaluation are accepted by taxation administration : the first in first out
method and the average cost method. The late in first out method is possible in accountancy only, but
not for taxation purpose.
5) Inventory statements :
 Stock itself : at the end of the exercise, the firm must eliminate the initial stock and determine the
final stock. The variation of the stock is included in the account : Variation of the stock. This
variation is a load account for raw materials, other materials, half-finished products and good for
resale stock. This variation is a yield account for finished products stock.
 Depreciation : if the current value is less than the inventory value of the stock, a provision for
depreciation must be done.
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European Module : Interactive European Professional Accountancy.
EXTRACT FROM THE FRENCH OFFICIAL ACCOUNTING PLAN 1982
Class 3 Stocks.
31 Raw materials
32 Other materials
33 Half-finished products
34 Half-finished services
35 Finished products
37 Goods for resale
39. Provision for depreciation of stock.
Class 4 Thirds accounts
401 Suppliers
411 Clients
44566 State, VAT on other goods and services
44571 State, VAT collected
Class 6 Loads
601 Purchase of raw materials
607 Purchase of goods for resale
6031 Variation of stocks of raw materials
6032 Variation of stocks of other materials
6037 Variation of stocks of goods for resale
68173 Provision of the year. Depreciation of stocks
Class 7 Yields
701 Sales of finished products
707 Sales of goods for resale
71 Production in stock
7135 Variation of stocks of goods for resale.
78713 Reduction of provision for depreciation of stocks.
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