Stock gains and losses

[qqla]

Just a tad confused on how to record them.
For example, you have a balance of ten units of $10 stocks and another ten units of $20 stock. (let's assume that there have been multiple purchases, sales etc, but the balance of $10 stock never exceeded 10 units)

In the Cambridge book, it says to record stock gains for the lowest cost price on hand (adhering to conservatism). What if this new adjusted balance figure contains more low cost stock than in the past, eg twelve $10 dollar stocks even though there have never been more than ten $10 stocks.

Should stock losses also be recorded in the same 'conservative' way (by recording the highest cost price on hand OUT. In this case, the $20 stock) Or should we adhere to FIFO instead.

Sorry if I sound confusing, but I've been told so many things and I don't know what to believe anymore lol, teacher says to always remember conservatism EVEN in stock loss, which has put me off haha

[abcdqdxD]

Stock gains and losses should always be recorded at the lowest cost price shown by the balance in the Stock Card. This prevents overstating assets (Stock Control), thus adhering to the Conservatism principle.

E.g. The balance shown in the Stock Card is 2units@20 each and 3units@25 each. A Stock gain of 2 units has been detected, record this in the Stock Card.

The lowest cost price of stock on hand is $20, hence the stock gain of 2 units must be recorded in the 'IN' column as 2 units @ $20 $40.

Your final balance will then be:
 4 units @ 20 $80
 3 units @ 25 $75.

EDIT : Sorry, BoredSaint is right - for a stock loss, use FIFO

Hope that helps.

[BoredSatan]

NO FOR A STOCK LOSS YOU USE FIFO

sorry saw that at the end of the above post but didnt want to quote the whole thing

[qqla]

I just did a neap practice exam, and the stock gain problem popped up again. Instead of stock gaining the lowest value ON HAND (there was only one line of stock), they stock gained the cheaper, older stock.
If anyone has their cambridge textbook and looks at their little stock gain part, can they confirm if their method is the right way to go?

[abcdqdxD]

Cambridge textbook explicitly states stock gains are recorded at lowest cost price of the stock currently on hand. I did the same NEAP paper as you (2011 version if i recall correctly).

The solutions are incorrect.

[Tragesty]

Alright now I'm confused - I've used FIFO in the past but I just looked at Cambridge and it says put in stock gain at the lowest stock price - so which one do I follow?! Fifo or conservatism?

[sam.utute]

Alright now I'm confused - I've used FIFO in the past but I just looked at Cambridge and it says put in stock gain at the lowest stock price - so which one do I follow?! Fifo or conservatism?

Stock LOSS = FIFO
Stock GAIN = CONSERVATISM

[Tragesty]

Just looked through the Cambridge book and you're correct, thanks!

[qqla]

I reckon the thing that is putting off everyone is the 'on hand/stock available bit'.

[sam.utute]

Cambridge textbook explicitly states stock gains are recorded at lowest cost price of the stock currently on hand. I did the same NEAP paper as you (2011 version if i recall correctly).

The solutions are incorrect.

The old study design required you to use reverse FIFO (as opposed to the new study design which uses conservatism). Some past papers may have incorrect answers due to the change.

[BoredSatan]

Cambridge textbook explicitly states stock gains are recorded at lowest cost price of the stock currently on hand. I did the same NEAP paper as you (2011 version if i recall correctly).

The solutions are incorrect.

The old study design required you to use reverse FIFO (as opposed to the new study design which uses conservatism). Some past papers may have incorrect answers due to the change.

I thought it was always conservatism for stock gains..
I think reverse FIFO was for returns of stock in unit 4.

I do know that stock loss are ALWAYS FIFO

[sam.utute]

Cambridge textbook explicitly states stock gains are recorded at lowest cost price of the stock currently on hand. I did the same NEAP paper as you (2011 version if i recall correctly).

The solutions are incorrect.

The old study design required you to use reverse FIFO (as opposed to the new study design which uses conservatism). Some past papers may have incorrect answers due to the change.

I thought it was always conservatism for stock gains..
I think reverse FIFO was for returns of stock in unit 4.

I do know that stock loss are ALWAYS FIFO

In 2010, they were still teaching stock gains using the reverse FIFO method. In 2011, some schools had introduced the Conservatism method in preparation for the official change the following year. I think VCAA was accepting either method last year. Obviously, this year, only Conservatism applies for Stock Gains.