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Claire Voyant
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Posted - 2009.10.26 17:42:00 -
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Isn't FIFO kind of archaic? Does it make sense to say the profit on an item is based on materials purchased maybe months ago, instead of comparing current sales price against current material cost on the market. Then you also track you inventory (both materials and finished goods) against market value and try to manage the market risk of your inventory. Either by keeping inventory as low as possible, or by "hedging" by buying inventory when prices are low and not buying when prices are high. Anyway, that is what I would do if I could be bothered.
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Claire Voyant
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Posted - 2009.10.26 20:58:00 -
[2] - Quote
If you are build real-word things like automobiles, FIFO makes sense. You contract with a company to make parts for your car, the parts are only for a limited number of car models, and you can't scrap them for anywhere near what you paid for them. Also the production chain from raw materials to finished goods has many more steps than in eve.
What I'm suggesting is something like the "mark to market" accounting rules for financial companies. For my business, I could take the inventory of all my raw materials, components, and finished products and calculate their value according to the current prices of 7 minerals. Seems a lot simpler to me.
It's a little more complicated for tech2 production, and named items would be another matter altogether.
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Claire Voyant
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Posted - 2009.10.26 21:35:00 -
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 Originally by: Hexxx
I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.
Very difficult to do because the numbers on the two statements need to agree. You would probably need some inventory adjustment on the income statement to account for market changes, but that would make your whole FIFO valuation moot.
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Claire Voyant
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Posted - 2009.10.27 15:23:00 -
[4] - Quote
Just to be clear, when I suggested "mark to market" I meant just the material cost. I did not mean to value the inventory of finished goods at their market price.
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Claire Voyant
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Posted - 2009.10.27 21:09:00 -
[5] - Quote
Originally by: Varo Jan
Read IAS2. The fundamental principle of that accounting standard is: "Inventories(stock) are required to be stated at the lower of cost and net realisable value (NRV). [IAS 2.9]" In practice, that means that stock enters the balance sheet at cost and remains at cost unless seriously adverse conditions occur. You do *not* revalue stock (a current asset & part of your working capital) upwards. Ever.
While I understand the need for this rule in the real world with real-word products, we are playing an internet space ship game with the possibility of perfectly efficient production and perfectly efficient reprocessing. I for one would like to talk more about why you feel this rule is appropriate in Eve, and less about the way it is done in the real world.
If I am producing shuttles, give me one good reason why I shouldn't value them based upon the current value of the trit they contain, or for that matter, why I shouldn't value a pile of trit at it's current market price.
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Claire Voyant
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Posted - 2009.10.28 12:23:00 -
[6] - Quote
Originally by: Varo Jan
Originally by: Claire Voyant
Originally by: Varo Jan
Read IAS2. The fundamental principle of that accounting standard is: "Inventories(stock) are required to be stated at the lower of cost and net realisable value (NRV). [IAS 2.9]" In practice, that means that stock enters the balance sheet at cost and remains at cost unless seriously adverse conditions occur. You do *not* revalue stock (a current asset & part of your working capital) upwards. Ever.
While I understand the need for this rule in the real world with real-word products, we are playing an internet space ship game with the possibility of perfectly efficient production and perfectly efficient reprocessing. I for one would like to talk more about why you feel this rule is appropriate in Eve, and less about the way it is done in the real world.
If I am producing shuttles, give me one good reason why I shouldn't value them based upon the current value of the trit they contain, or for that matter, why I shouldn't value a pile of trit at it's current market price.
 Is coding in Eve any different to the real world? Is marketing in Eve different? Is man-management different? Is researching a market different? No, no, no and no. So what&s with all the angst about accounting?
One of the foundations of accounting is conservatism. That principle doesn&t disappear here in Eve. That&s why you should show your shuttles at cost - not at some hypothetical selling price. In fact, the principle applies very strongly here. Look at the recent massive drop in trit alone. Look at the wild fluctuations in module prices you see on a daily basis.
I have repeatedly said I'm not talking about valuing manufactured items at their hypothetical selling price. What I am talking about is updating the "cost" to reflect current mineral prices, call it "current production cost" and updating the value of raw mineral inventory to current market prices. If you ask me, the recent massive drop in trit supports my case.
My first coding project thirty years ago was an accounting program for a commodities futures trader. We used mark-to-market accounting because that was the standard and our statements had to agree with the statements the customers were receiving from their brokers. I know for a fact that accounting standards do change to reflect new technologies, etc.
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