Selected problems of valuation of self-produced inventories

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Technická Univerzita v Liberci
Technical university of Liberec, Czech Republic
This paper deals with the core problem of any financial accounting system, namely valuation of one kind of assets of a company. Inventories create a significant portion of the assets of manufacturing enterprises. They may be purchased externally or created within a company. It is necessary to devote a special attention to inventories created through the company´s internal activities. The method of their valuation is based on the characteristics of the production process. Simultaneously, the valuation approach must be such as to avoid overvaluation or undervaluation of assets. The selected method of valuation of products does not affect only the value of assets, but it will be significantly reflected by changes of inventories into the economic result, and thus into the tax base. Integrally, it will have an impact on the fundamental financial statements and the related calculations of indicators of financial management. In specific production conditions of a given company, a case study demonstrates how the economic result may be impacted by adoption of either of the two alternative valuation methods. Currently, the company evaluates its self-produced inventories on the basis of direct costs. In correspondence with the nature of the manufacturing process, however, the company could also include their overheads into the valuation process.
inventories, costs, economic result, valuation, overheads