Asset Stock Write Off/Down

[Kirsty Ashmore]

Hello

We have our asset stock booked onto sage in a stock code, each year we would write down a percentage of the value of the asset stock.

If we now wanted to write the full value of the asset stock off of sage completely this has a value of 50K, which will then reduce our taxable profit meaning this would reduce our year end tax bill.

Am I allowed to just write off the full value or do I need write the stock off then transfer the NRV into fixed assets on the balance sheet and then depreciate it yearly?

If the correct route was to write off the stock and transfer into the balance sheet at the NRV, would I just get the tax benefit on the difference between the value wrote off stock (in the P&L) and the value transferred into the balance sheet?

 

[Scalloway]

Does the stock have no resale value?

 

[Kirsty Ashmore]

For example if the stock at 50K now has a resale value of 10K, I am just trying to get an understanding on how this should be dealt with and what impact it will have with the tax benefit, would we get a 40K tax benefit?

 

[Scalloway]

Stock should be shown in the accounts at the lower of cost or net realisable value. Writing off the stock will increase the cost of goods sold and so reduce taxable profit.

 

[CA85]

Am I allowed to just write off the full value or do I need write the stock off then transfer the NRV into fixed assets on the balance sheet and then depreciate it yearly?

Not sure I understand this comment? It is either stock (for resale) or fixed assets (for use in the business). What exactly are these items?

As Scalloway has said, if it is a write down in the value of stock, this is an expense in the P&L and reduces your profit. I would be keeping a note/explanation of what you have done so that you can justify this treatment as reasonable should HMRC ever enquire.