Effect of stock valuation methods on financial statements

Due to the demand-supply balance of enterprises, stocks are of great importance at every stage from production to sales. Businesses should keep their stocks under record, follow and determine their values. When the methods used in valuation of stocks are examined, it is seen that there are many methods. In the standard 2 of the stocks of Turkey Accounting Standards (TMS-2), FIFO and Average Cost method are stated as recommended methods to be used. On the other hand, as a result of the researches conducted in the literature, it is understood that the first two of the most used stock valuation methods are FİFO and Average Cost method in the researches of enterprises operating in different sectors in our country. Therefore, in this study, it has been investigated whether the choice of method used in the valuation causes any change in the financial data of the enterprise. In this study, these two methods were examined and compared for three different types of shipments by H operation as an example. It was handled that the first case is about stable situation, the second case is about increase situation and the third case is about decrease situation which represent amount of shipment to production. For all three cases, unit cost per shipment, total costs per shipment, total costs per period, cost of goods sold and end-of-period stock cost were calculated and compared according to average cost and FİFO. The first item and material stocks were taken into consideration while performing all these calculations. Based on the comparison of these two methods, the effects of inventories on financial statements are discussed. In addition, in order to evaluate the stock and stock items in the financial statements in detail, IPO financial statements of Tofaş Türk Otomobil Fabrikası A.Ş. that is operating in manufacturing industry were investigated and various analysis techniques were applied.