Stock, stock transfers and work in progress

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

Valuation of stock

Stock can impact on the profit or loss in a variety of situations, such as a sale, appropriations by business-owners, changes in value or obsolescence. It is therefore important that stock is valued as accurately as possible to ensure the correct amount is assessed for tax purposes. GAAP provides the starting point.

FRS 102, s 13 ‘Inventories’ (the term used to describe stock) sets out the definition of inventories and the basis of valuation required under UK GAAP. The IAS equivalent is IAS 2 ‘Inventories’. The principle under IAS is essentially the same as under FRS 102.

Under FRS 102, inventories should be valued at the lower of cost and the estimated selling price, less completion and selling costs, known as net realisable value. Where inventories are held for distribution for nominal or no consideration, they shall be measured at cost, adjusted where applicable for any loss of service potential.

Micro-entities are permitted to use FRS 105 rather than FRS 102, which allows for more simplified financial statements.

Cost is

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