CATHOLIC UNIVERSITY OF MOZAMBIQUE

School of Education and Communication

Bachelor's Degree in Accounting and Auditing 2nd year, Evening Course

Valometry Criteria

Students:

Denisia Franciso Borges

Iracema Katar Sulemane

Lazio Teixeira Brito

Saly Velasco Muneme

Teacher: Iacumba Saide.

Nampula, May 2022

 CATHOLIC UNIVERSITY OF MOZAMBIQUE

College of Education and Communication

Valometry Criteria

Evaluation work of the

Chair of Financial Accounting III
taught in the 2nd year of the course of

Accounting and Auditing, by the instructor

Iacumba Saide.

Students:

Denisia Franciso Borges

Iracema Katar Sulemane

Lázio Teixeira Brito

Saly Velasco Muneme

 Nampula, May 2022

Index
Introduction...................................................................................................................................1

Control over the stocks

Periodic control..................................................................................................................2

Permanent control..............................................................................................................3

Valuation criteria.............................................................................................................4

Weighted Average Cost

FIFO

LIFO

Conclusion...................................................................................................................................9

Bibliographic References.......................................................................................................10
Introduction

The present work is part of a group project that we have been assigned to by
teacher of the subject, has as theme Valometry Criteria. The existences are a source of
more diverse and difficult problems of accounting, both in the theoretical field and in the field
practical, (Araújo, 2009)

As far as valometry is concerned, there are widely accepted criteria and criteria that are only in
special circumstances are admitted. According to Costa and Alves (2008) the general criterion is
value the inventories at acquisition cost or production cost, being allowed
other bases only in exceptional situations. This criterion is, by the way, in accordance with the
historical cost principle, according to which accounting records must be based on
acquisition or production costs, whether in nominal euros or in constant euros.

The constituent parts of this work include introduction, development and

conclusion.

1
Control over inventories

According to Coelho, Siqueira, and Lins (2008), inventories represent one of the most important items

relevant to the asset and is also characterized by a large movement in the industries and in
general trade. In this sense, its monitoring becomes essential for a
correct control of the inputs and outputs of these assets in companies.

Depending on the size and characteristics of the company, two types of controls can be
used: Periodic Control and Permanent Control.

Periodic control
Periodic control or periodic inventory can be found in small businesses.
portal, has as main characteristics the ease of understanding and implementation,
in addition to requiring a single physical count of the inventory at the end of the year, when it is
Once the final balance of the stocks is calculated, it is recorded in the balance sheet. Using the following

formula for calculating the cost of goods sold (COGS).

CMV = EI + C - EF

Where:

Initial Inventory

C = Purchases

Final Inventory according to the annual physical count

This methodology has the advantage of being simple to apply, but also a strong
restriction regarding controls over unplanned exits, such as deviations and thefts. This
The fact is that the final physical count will be the value that will make up the final inventory balance.
of goods, therefore, any deviations and losses will not be easily detected in
moment of its occurrence.

Example: The company União Lda., in the field of copra and sale of office chairs, is
closing your 2007 balance sheet. To that end, you conduct a physical inventory count of your stock in

31/12/2007, determining the existence of 100 standard type chairs and 300 luxury type chairs.
After valuing by the acquisition price (cost), the following values were calculated:

Standard ($50 x 100 units) = $ 5,000

Luxury ($100 x 300 units) = $30,000

2
Total final stock = $ 35,000

Based on the information from the ledger, the following amount of purchases was determined.
made in 2007:

$125,000

Still based on the 2006 balance, the following final stock value for that year was determined.
(note that the final stock of the previous year is the initial stock of the following year):

Estoque final em 2006 = $ 10.000

The CMV for the period would be:

CMV = $10,000 + $125,000 - $35,000

CMV = $100,000

Permanent control
The perpetual inventory, or perpetual stock, presents a control over each
movement of the account merchandise stocks. It means that the movement of the stocks
is done directly in the corresponding one, without the need to use the purchase account,
according to the periodic control.

The advantage of this method is to allow, at any moment, a confrontation between the position
physics and the accounting position, with each entry or exit, thus allowing to check and
detect possible deviations of items in stock. The disadvantage is that it requires a
constant and effective monitoring of all stock items, which, depending on the
the company may incur significant costs in personnel and data processing.

When the company has a very large quantity and movement in its inventories,
usually a classification called ABC is made. In this classification, the items in
stocks are classified according to their degree of importance and/or financial value for the
company.

Class A - the most important;

Class B - the intermediates;

Class C - the others.

Items classified as class A are inventoried (counted physically) with greater

frequency and confronted with the accounting controls; the items classified as class

3
B are inventoried less frequently; those classified as class C have controls.
less rigorous.

Valuation criteria

According to Araújo (2009), the valorization of existence as a process of determination of the

entry and exit prices, thus assuming a more special relief the greater it is
volume of company stocks. Relatively to the entries, the inventories must be
valued at cost price, which consists of all charges (invoice price,
freight, insurance, etc.) deducted all commercial discounts obtained, in which it occurred for
to effect the definitive possession of the assets. That is:

Cost price = Invoice price + purchase expenses - trade discounts obtained (in
invoice or extra invoice.

According to Costa and Alves (2008), regarding volumetry, there are broad criteria.
acceptance and criteria that are admitted under special circumstances. Here are the main ones:

Weighted average cost;

FIFO (first in, first out);

LIFO (last in, first out).

Weighted Average Cost

Coelho, Siqueira, and Lins (2008) assert that the assessment of the stock account movement
using the cost has the characteristic of disregarding the necessary batches in the others
control methods. Your methodology consists of updating the unit cost of inventory
considering each purchase so that the sales of goods are deducted by the amount
average unit.

According to Araújo (2009), this method views the inventory as a whole by

that the lots lose their individuality. The cost of each element is determined from
from the weighted average cost of the existing elements, that is:

Total cost of goods+Total cost of new entries

Custom medicine=
Existing quantities+ New quantities entered

The average cost can be determined after each new entry - progressive average cost - the
which corresponds to the treatment considering preference.

The advantages normally attributed to the average cost are basically the following:

4
It is a realistic costing method;

It is a method in which average costs minimize the effects of cost variations.

acquisition or production.

Example:

The company Alfa sells product A, whose movement in the month of December 2010 was the
next:

Initial existence:

1/12: 500 units @ 90 45,000

Warehouse entries resulting from purchases

10/12: 300 units @ 94 28,200

20/12 47.450

Warehouse outputs resulting from sales

15/12

30/12: 420 units

Warehouse entry resulting from customer returns

23/12

Warehouse exits resulting from offers

27/12: 50 units

Knowing that all units were sold at 150:

Prepare the inventory record for product A adopting the weighted average cost.

Determine the gross margin generated from sales.

Doc Entries Outputs Existences

Description
Data No. Q. P.U. Value Q. P.U Valor Q. P.U Value

02/12 Transport 500 90.0 45,000

10/12 101 Guide entry 300 94.0 28.200 800 91.5 73.200

5
December 15
1300 G. Exit 450 91.5 41.175 350 91.5 32.025

20/12 102 G. Entry 500 94.9 47.450 850 93.5 79.475

G. E.
December 23103 150 91.5 13.725 1000 93.2 93.200
(returns,)

G. S.
27/12 1301 50 93.2 4.660 950 93.2 88.540
offers

30/12 1302 G. Exit 420 93.2 39.144 530 93.2 49.396

The gross margin provided by product A is as follows:

108,000 - 66,594

Margem bruta 41.406 – 4.660 Oferta a clientes = 36.746

Note 1: 150 (450 + 420 - 150) = 108,000

Note 2: 41.175 + 39.144 - 13.725 = 66.594

FIFO
As previously mentioned by Coelho, Siqueira, and Lins (2008) in the permanent inventory, for
all incoming and outgoing movement, the account 'Inventory' is updated immediately. For
that it is possible to determine the amount for which the 'write-off' (exit) from the inventory will be given by

sale or for any other reason, it is necessary that all input values in the stock
they should be identified by 'batches'. In the case of FIFO, the deductions will be made following the

"first in, first out". This procedure, according to

we will see, it allows the 'Inventory' account to always have its values updated
due to always keeping the most recently purchased items in stock.

Let's look at the following example:

On 01/01/X6 = purchase of 1,000 units at $1.00 each;

On 01/02/X6 = purchase of 500 units at $1.20 each;

10/05/X6

June 15/X6 = sale of 600 units at $5.00 each;

On 30/06/X6 = purchase of 200 units at $1.25 each.

6
 Entry Exit Stock

Data Qty [Link]. Total Qty [Link]. Total Qty [Link]. Total

01/01/06 1.000 1.00 1,000.00 - - - 1.000 1.00 1,000.00

1.000 1.00 1,000.00

01/02/X6 500 1.20 600.00 - - - 500 1.20 600.00

400 1.00 400.00

10/05/X6 - - - 600 1.00 600.00 500 1.20 600.00

400 1.00 400.00

June 15, X6 - - - 200 1.20 240.00 - - -

June 30, X6 200 1.25 250.00 - - - 300 1.20 360.00

200 1.25 250.00

Totals 1,850.00 1,240.00 500 610.00

LIFO
In the case of LIFO, in order to determine the value at which the 'write-off' will be given
(outgoing) in stock, the values of the batches related to the last purchases are considered. In this
meaning, with an increase in prices, the final balance of the 'Inventories' account will show a value
inferior to that obtained by FIFO.

Let's see the behavior of the outputs and the value of the final stock using the same example:

Entry Exit Stock

Data Qty [Link]. Total Qty [Link]. Total Qty [Link]. Total

01/01/X6 1,000 1.00 1,000.00 - - - 1.000 1.00 1,000.00

- - - - - - 1.000 1.00 1,000.00

01/02/X6 500 1.20 600.00 - - - 500 1.20 600.00

Balance - - - - - - 1.500 - 1,600.00

10/05/X6 - - - 500 1.20 600,00 - - -

- - - 100 1.00 100.00 - - -

7
 - - - 600 - 700.00 - - -

Balance 1,500.00 - 1,600.00

15/06/XX6 - - - 600 1.00 600.00 - - -

Balance - - - 300 1.00 360.00

- - - 300 1.00 360.00

30/06/X6 200 1.25 250.00 - - - 200 1.25 250.00

Totals 1,850.00 1,300.00 500 550,00

Note that the inventory valued using FIFO shows a higher balance than the others ($610).
This fact is a result, as already mentioned, of the accounting of the outflows by purchases.
who entered first into an economy with rising prices. Consequently, the
inventory values are closer to the most recent purchases. The reverse reasoning is
applied to LIFO, whose inventory is valued at the prices of the first entries, since the
outputs were made based on the latest inputs. In the case of the average cost, it
maintains under the effect of the 'average' value of the purchases made.

8
Conclusion

After the approach, it was realized that depending on the size and characteristics of the
In a company, two types of controls can be used: periodic control or inventory.
newspaper can be found in small businesses, has as main
features the ease of understanding and implementation, in addition to the fact that it requires a
unique physical counting of inventory at the end of the year, when the final balance is determined
stocks are recorded on the balance sheet. And the perpetual control, or perpetual inventory,
it provides control over each transaction of the inventory account of goods. It means
that the movement of inventories is done directly in the corresponding one, not being
it is necessary to use the purchases account, according to periodic control.

According to Araújo (2009), the appreciation of existence as a process of determination of

entry and exit prices, thus it assumes a more special topography the greater it is
volume of the company's inventories.

According to Costa and Alves (2008), with regard to valorimetry, there are broad criteria.
acceptance and criteria that, in special circumstances, are admitted. Here are the main ones: Cost
weighted average, FIFO (first in, first out) and LIFO (last in, first out).

In the weighted average cost, the inventory is viewed as a whole, so the batches lose their
your individuality. The cost of each element is determined based on the weighted average of
cost of existing elements. In the case of FIFO, the decreases will be made following the
"The first batch that entered will be the first batch to leave." And in the case of LIFO, for it to be...
it is possible to determine the value for which the 'write-off' (exit) in stock will be made, they are

considering the values of the lots related to the last purchases.

9
Bibliographic References

Financial Accounting
of the Books.

Fundamentals of Accounting
Structure, Classification and Analysis, An interactive proposal. São Paulo, Brazil: Thomson.

Araújo, I. P. S.

10