Q36. Discuss the method of maintaining store ledger or valuing issue price.
Ans. Method of maintaining store ledger or valuing issue price are:
- Specified Price Method:
In such method, goods are purchased in one lot for each job or work order separately and kept in stores. Goods are issued to job at the price that which these were purchased. So such method charged issue at cost price. It is used where work can be divided into many jobs or works order.
- First In First Out Method: In this method, goods are issued in the same sequence as these were purchased. So goods purchased very first will be issued first and then from next purchase. Closing stock in this method shows current market price.
- Last In First Out Method: As the name indicated, goods which received last will be issued first and then so on. In this method, issue of goods are charged at latest market price. So the cost of production shows the current cost of production.
- Base Stock Method: In this method, a minimum quantity of goods is kept as best stock and its valuation remain same. The goods above such quantity are valued by any method as indicated above. So it is mainly the method of stock valuation then pricing issue.
- Simple Average Price Method: Such method is based on average principle. When goods have to be issued than average rate of all goods which are in existence at the time of issue will be calculated and charged to such issue. It neglect the quantity of such goods and consider only price of such goods. So there may rise of profit or loss situation in the stores.
- Weighted Average Price Method: It remove the short coming of simple average price by taking quantity in the calculation of issue price. In weighted average price method, issue price is calculated as follows:
Issue price= Total Value Of Goods/ Total Quantity
- Periodic Simple Average Price Method: it is same as simple average price. In such methods, a period, for example a month will be taken for calculating average price. When goods issued in that month, no rate charged at the time of issue. When such month end, the average of all purchase price is calculated and such average rate is charged to each issue in this month. So the issue price, remain same for all issue in a month.
- Weighted Average Price Method:It is calculated in the same manner as periodic simple average price. Only difference is that it is calculated weighted average price rather than simple average price. Periodic weighted average price is calculated as follows:
Periodic Weighted Average Price= Total Purchase Value In A Period/ Total Quantity Purchase
- Moving Simple Average Price Method: In such method, first of all a period of moving average has to be decided. For example three month moving average is decided. Now if we have to calculate moving simple average price of April than we will averaging the purchases price of Feb, March and April and such average price will be the issue price of April issue. If we have to calculate the issue price of May issue then we will averaging the purchase price of March, april and May. The main object of such method is to remove wide fluctuation of in issue price from period to period.
- Moving Weighted Average Price Method: It is same as moving simple average price. Only difference is that in such method, instead of simple average price, weighted average price is used.
- Replacement Price Method: It is part of market price method. When goods are issued then the market price of same goods in the market is ascertained and such price is charged to such issue. So the issue price oh ho and cost of production.
- Realizable Price Method: It is same as replacement price method as it is also based on market price method. When goods are issued then the selling price or realizable price is ascertained and same rate is charged to issue. It is based on the concept that rate which can be realized from the material by selling it to any other should be charged to issue.
- Standard Price Method: In this method, a standard rate is fixed after considering the current purchase price, future expectation etc. and such rate is charged to all issue, whatever be the purchases price. The main object of such method is to charge all issue at the same rate.
- Inflated Price Method: In case of stores, they may arise some amount of wastage and shortage. Such loss can be treated in two ways:
1. Treat it abnormal and charged to costing profit and loss account.
2. Treat it normal and charged to good unit so the rate of good unit increased. The second treatment is called inflated price method. So it is not a method of pricing issue. It is used with any other method of pricing issue.
- Re-Use Price Method: It is used in case of material which become seconds or scrap. There is no fix procedure for calculating issue price of such material.