08.07.2010
Business Advice
A client of mine has a stocktake coming up and they have a mixture of goods and products to value, so how should they do it? This depends on what the product is and how it is going to be used. The normal basis for valuing stock is at the lower of cost or net realisable value. This means whichever is the lowest of:
Cost
The actual cost of goods including bringing them in (ie delivery costs)
Net realisable value
The amount that you will realistically be able to sell it for. In many cases stock is held which “may” be useful in times to come but in reality this is not in the foreseeable future. In this case it may be that the value is a fraction of the cost or may actually be zero.
There are a number of different categories of stock and the practical way these are valued varies, but nonetheless all use the same principle. In all cases you should consider whether the realisable value is greater than cost and if not take a view on what value to apply.
Raw materials for manufacturing
These will be valued at cost of bringing the product to site. Clearly if the item is complete as it came onto site then the value will be that shown on the invoice. If there are a number of deliveries at different prices these are usually priced on a FIFO (First In First Out) basis, ie assume the oldest stock is used first. So you may have to refer to a number of prices if the quantity in stock is greater than the items on the last invoice.
The next problem is partially used “raw material”, you will need to value this based on what remains, so if it is a product sold by length you will need to measure the remaining amount and pro rata that by the cost of a complete unit (eg cable or fabric). A similar principle can be used for products sold by weight or volume.
Finished goods
These are valued at the cost of the materials used ,including any scrap or off cuts not useable elsewhere, together with the cost of any labour to produce the product.
Goods bought for resale
These are typically retail goods and are valued similarly to raw materials, this may be the area most prone to realisable value valuations due to obsolescence or old product lines.
The big mistake many business owners make is to value goods or products at sales value, this is an incorrect way of valuing and hopefully the above will be of assistance. This article is a brief summary of the principles of stock valuations and may not apply to specific circumstance so please seek professional advice before taking any steps based on the information shown. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting – Accountants who “speak your language”
28.06.2010
Tax Advice
This post will be of interest to anyone likely to pay capital gains tax (CGT) as a result of a sale of an asset in the 2010/11 tax year. The June Budget introduced an overnight change to the CGT regime and HMRC have produced a fairly readable Budget Note 20 and a copy of the Example 1 from that release is reproduced at the foot of this article. The example uses a taxpayer whose income is taxed at the basic rate but in adding capital gains the inclusive income will be in the higher rate band. read more
22.06.2010
Tax Advice
We have been complimented on the updates posted on Twitter live during the Budget and hope to continue this by summarising the main points of interest to small business owners and individuals in the street.
The Chancellor George Osborne started by painting the picture of the poor state of the economy and among various political comments stated that due a cautious approach fiscal goals would be met one year earlier than expected in 2014. The inflation target will remain at 2% which has already been exceeded, this will peak at 2.7% later in the year and then reduce. In terms of the approach to the deficit a lower spending rather than higher tax route is being taken, read more
