Different Methods of Product Valuation and Their Impact on Company Business Performance

Accounting is a kind of service activity that helps those in charge to make appropriate business decisions. Accounting reports are an organised presentation of accounting data processing – a record of business events that occurred in the past, in which the state of assets and liabilities to their sources, as well as the operating result, must be shown truthfully and fairly. Due to the specific nature of production, different methods of inventory valuation have been developed. The choice of valuation method is very important for every company, as it has an impact on the operating result, as well as on the true and fair presentation of the value of assets.

Problem

Accounting is a kind of service activity that helps those in charge to make appropriate business decisions. Accounting reports are an organised presentation of accounting data processing – a record of business events that occurred in the past, in which the state of assets and liabilities to their sources, as well as the operating result, must be shown truthfully and fairly.

Solution and Method

Due to the specific nature of production, different methods of inventory valuation have been developed. A company can value inventories of work in progress, semi-finished products and finished products using three methods.

Results

The choice of valuation method is very important for every company, as it has an impact on the operating result, as well as on the true and fair presentation of the value of assets. The purpose of the diploma thesis is to determine which of the inventory valuation methods is, based on theoretical foundations and taking into account the characteristics of production, most appropriate in the company XY d.o.o., and what impact a change in valuation would have on the business result and the value of inventories in the balance sheet. The chapter Process of Production Monitoring from an Accounting Perspective describes the production process, the sequence of production processes and states, and also provides a definition of partial business effects.

The chapter Cost Centres and Cost Carriers in Production presents the definition of a cost centre, the formation of cost centres, the definition of a cost carrier and the connection of costs with the cost carrier. The chapter Definition of Effects and Costs in Production presents the classification of costs, the definition of indirect costs and direct costs, the allocation of costs to cost centres, the transfer of costs to basic cost centres, the transfer to effects and the addition of indirect costs.

The chapter Methods of Product Valuation – Inventories presents the methods of inventory valuation. The chapter Practical Example contains a description of the company XY d.o.o., and subsequently calculations of inventory valuation methods using three different methods are carried out, as well as the effect on the income statement and balance sheet. In the concluding part, based on theoretical foundations and the practical example, an attempt was made to prove the stated propositions and findings.