Hi,

Just need some technical advice really. As well as my own studies I am running a small ebay business buying faulty laptops, breaking down and selling the usuable parts.

My question really is how to value the stock in the balance sheet…....

As the laptop I purchase is made up of several parts, I am unsure how to value each individual part. An example being I buy a laptop for £50.00, this obviously is entered into stock in the balance sheet initially. Then I make a sale of the motherboard for £40.00, and say I have 3 other parts left on it to sell. The sale value is obviously £40 but how do I recognise the cost of it to match in the P & L and value the rest of the remaining items?

Do I wait til I have sold the rest of the remaining items and compromise the matching concept or do I just estimate the costs myself for the part sold and the remaining items?

Advice is greatly appreciated.

When you come to prepare your accounts you make an estimate of the stock value which becomes your closing stock. In your case you would have to estimate the value of the parts, which I guess would be very small and have a large mark-up.

ranje - August 25 2010 07:12 PM

When you come to prepare your accounts you make an estimate of the stock value which becomes your closing stock. In your case you would have to estimate the value of the parts, which I guess would be very small and have a large mark-up.

Hi there,

Many thanks for the reply. I am not just preparing the accounts at the end of the year but keep them updated throughout the year so in effect have a live stock value on spreadsheets which makes up the profit and loss & balance sheet. But I am guessing the same principle applies.

Hi,

I may be wrong on this. Stock is valued at lower of cost or net realiseable value (i.e. sales price for you less ebay fees). If the laptop cost £50 and has 3 good components which could be sold, I would allocate the £50 between the 3 items based on sales value (e.g. estimated sales price item 1 £40, item 2 £10, item 3 £5 = item 1 stock value £40/£55 total sales price X £50 stock cost = £36 stock value for item 1).

I am sure there are lots of other ways you can value the stock.

Regards

Mo

Sales value is as good a way of splitting the values.
You are not alone, many businesses do something similar. For example a butcher may buy a carcass of a cow and then prepare it for sale where the suet fat and the filet steaks will later have very different values on a price per kg basis.

You may have come across joint-product costing as part of your process costing studies. This fits this method and may assist you as you manage the business.