04-17-2009, 05:06 PM
Mr. Faraz
It is upto you to make your own rules and you may.
Weighted average does not mean to change result in a day. IAS 2 paragraph 22 states that "under the weighted average cost formula, the cost of each item is determined from the weighted average cost of similar items at the begining of a period and the cost of samilar items purchased or produced during the period." Here "period" doest not mean hours or minutes. "During the period" has also its meaning. In my point of view you are not understanding the weighted average.
As I suggested earlier, Think that you made transactions in a day and there is no opning balance. no return. no loss etc. Now, Open your spread sheet. Make two transaction of 35 & 35 value of stock and cost of sales would be Rs. 1621 & 12378 respectively. Now interchange the purchase rate i.e 190 with 210 and visa versa. The value of stock will change as 1578 and 12422. Result is different. No change in the total purchase value and sales quantity but the result is different. Now understand yourself and apply weighted cost with its meaning.
Jani Websites and books are not wrong. What we understand and interprets is wrong. Nature of business may be different. The auther may be suggesting in the like form for investment in shares and securities where transaction is moving and sale / purchase is being done electronically. etc.
So think and think positively. Do not take results like child. slight delay in passing transaction may change your results and get results at day end closing and also try to understand CUT OFF PROCEDURES.
WASIM
It is upto you to make your own rules and you may.
Weighted average does not mean to change result in a day. IAS 2 paragraph 22 states that "under the weighted average cost formula, the cost of each item is determined from the weighted average cost of similar items at the begining of a period and the cost of samilar items purchased or produced during the period." Here "period" doest not mean hours or minutes. "During the period" has also its meaning. In my point of view you are not understanding the weighted average.
As I suggested earlier, Think that you made transactions in a day and there is no opning balance. no return. no loss etc. Now, Open your spread sheet. Make two transaction of 35 & 35 value of stock and cost of sales would be Rs. 1621 & 12378 respectively. Now interchange the purchase rate i.e 190 with 210 and visa versa. The value of stock will change as 1578 and 12422. Result is different. No change in the total purchase value and sales quantity but the result is different. Now understand yourself and apply weighted cost with its meaning.
Jani Websites and books are not wrong. What we understand and interprets is wrong. Nature of business may be different. The auther may be suggesting in the like form for investment in shares and securities where transaction is moving and sale / purchase is being done electronically. etc.
So think and think positively. Do not take results like child. slight delay in passing transaction may change your results and get results at day end closing and also try to understand CUT OFF PROCEDURES.
WASIM