Stock taking advice

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RoryH

  • #1
    Hope this is the right area for this - apologies if not.

    I have been running an eCommerce site for a few years and have started to accumulate a few older items of stock. In terms of stock taking, our accountant has advised that we can write-down (de-value) older items of stock but I have no idea of how to go about this.

    Are there any rules of thumb for this or does anyone know of any good guidelines I could look at?
    Any help would be greatly appreciated.
     
    R

    RoryH

  • #3
    Thanks - useful link. I guess the next question is how you go about working out the net realisable value?
    I know plenty about the products (hence why I’m selling it) but don’t really know how much it devalues after 12 months...
     
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    billmccallum1957

    billmccallum1957

    Free Member
    Feb 11, 2016
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  • #5
    Write-down to net realisable value
    NRV is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. [IAS 2.6] Any write-down to NRV should be recognised as an expense in the period in which the write-down occurs. Any reversal should be recognised in the income statement in the period in which the reversal occurs. [IAS 2.34]

    You have the products, but are they on sale or at list price? What is your discounted price (if any)?

    If you paid £2 each for an item, but they are now selling for £1 each, then the NRV is £1.
     
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    M

    Mr D

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    Feb 12, 2017
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    Stirling
  • #6
    I would suggest not dropping the price too far when trying to sell.

    On the markets years ago the regular traders would often see newbies drastically dropping prices in order to sell - and finding they got less sales at the new low price.
    The traders who had been there years could do it and sell - they were trusted and known. The newbies were there a few weeks or months only and not got the same trust.

    Its similar online - have seen people selling on amazon at way low price and not shifting the stock very quickly. People perhaps thinking fake, perhaps thinking too good to be true.
     
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    R

    RoryH

  • #7
    OK - thanks for the tips. Still not sure about a scenario such as the following example:

    Say I bought a t-shirt from the latest range from a supplier for £10 and was selling it for £20. 12 months later I can't sell it for full price as there is a new range out. I can put the t-shirt on sale and reckon I can probably get say £12 for it (so still more than I bought it for). However I also know that the supplier has leftover stock of the t-shirt and has reduced their price as well, say £5, but I haven't bought more stock.
    Do I value the t-shirts I have left in stock at £10 (as the cost I bought it at is still lower than NRV in the strictest sense) or can I value it at £5 as that is effectively what it's 'cost'/list price is now (although I haven't actually bought any stock at that value).

    Perhaps I have been confusing myself by focusing on NRV when actually it is the definition of 'cost' I am unsure about. Is this always what I bought it for or is it what it's current list price is?

    If it is the latter then am I allowed to make reasonable assumptions about a current list price i.e. can I automatically reduce the 'cost' of an item from a previous years range? My supplier may no longer have any of it left in which case there is no list price to reference, but if they did then they would certainly have reduced the cost themselves. Or is that too much of an assumption?

    Really appreciate the support on this!
     
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