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The purpose of valuing stock at market price instead of cost is to provide for an anticipated loss on sale. The loss expected must be such as will arise on a sale in the ordinary course of business. The question as to what goods in stock are worth on a given day involves the contemplation of some market; it would not be right to value goods at a figure which could be obtained by having a break-up sale, or a forced sale¹. The contemplation of a market involves two possibilities; the market in which the goods were bought and that in which they will be sold.

The first may be described as the replacement cost of the stock; the second is its realisable value. However, where a sale could not be effected without incurring further expenditure this should be allowed for, the result being known as 'net realisable value'.

FRS 102² s 13 refers to net realisable value. It is the expected sale price of the relevant stock in the condition in which it is expected