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Stock Valuation and Product Costing Weston Ltd is a retail store that buys and sells one product - Leaving Cert Accounting - Question 8 - 2018
Question 8
Stock Valuation and Product Costing Weston Ltd is a retail store that buys and sells one product. The following information relates to the purchases and sales of th... show full transcript
Worked Solution & Example Answer:Stock Valuation and Product Costing Weston Ltd is a retail store that buys and sells one product - Leaving Cert Accounting - Question 8 - 2018
Step 1
Explain how the concept of prudence applies to the valuation of closing stock.
Answer
The concept of prudence states that one should exercise caution when making financial estimates. It ensures that assets are not overstated, which is why inventory should be valued at the lower of cost and net realizable value.
If closing stock is overvalued, it can lead to an overstatement of profits, which can mislead stakeholders. Prudence encourages a conservative approach, ensuring that expected losses and expenses are recognized while only realized profits are recorded.
Step 2
Outline the role of the management accountant in an organization.
Answer
The management accountant plays a crucial role in an organization’s management team, contributing to the planning, controlling, and decision-making processes. Here are key responsibilities:
- Preparing data: Management accountants gather and prepare financial data for strategic planning.
- Budgeting: They provide details concerning costs and revenues, helping in budget creation for various departments.
- Control: They monitor budget adherence and performance against set standards.
- Decision-making: Management accountants analyze costs and revenues to support managerial decisions.
- Reporting: They prepare reports that communicate financial positions and forecasts to management.
The role emphasizes the importance of accurate data and thorough analysis in informed decision-making.