Price Effect in Stock

Metal price effect in stock

The inventories should be valued to the lower of cost and net realizable value each month. As a part of valuing the stock at cost, the metal content needs to be valued. Purchase prices for the metal changes every month and thereby the stock value changes. SMT is required to consolidate and report how much of the stock value change that is due to changed metal prices. This in order to clearly show and understand the effects from changed raw material prices in P/L and balance sheet.

Recalculation from group internal to group official cost includes changed volumes, changed metal prices and changed processing cost. This recalculation is to be split into two cost types for certain SMT entities:

In the profit and loss:

• CT8654 revaluation of metal prices in stock
• CT8651 recalculation of stock from group internal to group official cost.

In balance sheet:

• A149002 adding back price variances
• A149006 adding back of variances in local production

Account A149002 shall be used for all price-related revaluations of stock.

More about stock valuation and inventories can be read in the Sandvik Financial Reporting Policies and Procedures chapter 2.2.2.06.

Calculation of metal price effect (gain/loss) in stock
Instructions:

• To be calculated and reported each reporting month.
• To get a quarter/yearly value or YTD, add up the monthly values concerned.
• Use the present month's opening balance on the tonnage per metal.
• Calculate the price change during the month, i.e. this month's stock value per metal minus last month's stock value per metal. The most important metal is Nickel, but other metals that are to be included in calculations are chrome, molybdenum and iron.

Example:

Price loss in stock for January: (3079*(15,76-15,14)+1900*(123,81-123,99)+320*(199,27-218,61)+19011*(1,96-1,94) = -4 242 kSEK

Price gain in stock for February: (3173*(16,30-15,76)+1977*(123,34-123,81)+318*(196,99-199,27)+20923*(2,02-1,96) = 1 315 kSEK

YTD February: -4 242 +1 315 = -2 927 kSEK
This calculation shall be done each month in certain SMT entities after agreement with SMT Financial Control.

Accounting (based on details above)

Example Year 1:

January: Price loss 4 242 is debited the result account A400100 COGS and cost type CT8654, Revaluation of metal prices in stock and credited A149002 Adding back price variances. As the value of metal prices is lower the stock value is lower and this affects the result in a negative way. As the total revaluation including processing cost is 1 000, the cost type CT8651 is credited and A149006 is debited by 5 242. The total stock value has increased by 1 000 due to revaluation.

February: Price gain 1 315 is credited the result account A400100 and CT8654, Revaluation of metal prices in stock and debited A149002 Adding back price variances. As the total revaluation from standard including processing cost is 3 000, which is a change by 2 000 since January, the cost type CT8651 is debited and A149006 is credited by 685. The total stock value has increased by 3 000 due to revaluation from standard cost to official cost, but only increased 2 000 since last month.

Accumulated metal price in stock for February is a loss by 2 927 kSEK.

Between February and December the volumes and values are the same.

See booking examples below.

Example Year 2:

Standard costs are the same as in Year 1.

January: Price gain 500 is credited the result account A400100 and CT8654, Revaluation of metal prices in stock and debited A149002 Adding back price variances. As the total revaluation including processing cost is 2 000, the total change in the reserve is a reduction by 1 000. Account A400100 and CT8651 is debited and A149006 is credited by 1 500. The total stock value has decreased by 1 000 since year-end, but is 2 000 higher than the value at standard cost.