Stock and cost of sales question

[theaffiliate]

Hi,

After receiving quick and perfect help on my last question, would appreciate an answer to this one.

I have a limited company, and amongst other things, use it to regularly buy websites and flip them on for a profit. If the websites don't sell (I would say about 50% do), they generate revenue but will generally still be for sale if anyone enquires.

The websites which have been bought/sold in a given financial period is simple enough as I assume they will have just been classed as stock and therefore a cost of sale (given that this is one of the main sources of income)?

However... how are the websites which haven't sold treated in the same financial period? Do the purchases still count as a deductible expense on the profit and loss account, or are the only expenses the websites which have been bought and sold?

If they aren't treated as expenses for the same period they are unsold for, I guess they go down as assets? And if this is the case, how do I then account for them as an expense when they do sell?

Example:
Accounting period runs from April 1st 2011 - March 31st 2012.
Websites A, B, C and D all bought for £2,000 each in this period.
In the same period, websites A and B sell for £5,000 each.
At the end of this period, websites C and D remain unsold and carry over to the next year.

Would the allowable expenses for 11/12 be £4,000 (making a profit of £6,000) or £8,000 (making a profit of £2,000)? Obviously this is going to have an effect on corporation tax, which depending on the answer gives a difference of £800).

I've probably missed some kind of detail there... so please let me know if I have! :|

Using Kashflow by the way.

Cheers

 

[Scalloway]

Unsold websites are stock in hand. Their cost should be deducted from your purchases and added to the balance sheet as a current asset. If they sell the following year they should be added to purchases for that year.

 

[Anna Chandley]

Just to add to what Scalloway said the value of the websites held as stock at the year end will be the lower of cost and net realisable value.

If you expect to sell C for at least £2000 then it should be included in the balance sheet stock figure at £2000.

If you don't think you will ever be able to sell D then it's stock value will be £0 and the £2000 cost will be included in cost of sales. On the other hand if you think that you will be able to sell D but only receive £1000 then the stock value of D will be £1000 and the remaining £1000 cost will be included in cost of sales.

Anna

 

[theaffiliate]

Thanks Scalloway and Anna. If I wanted to do it in the way Scalloway suggests, how would this be done in Kashflow as it looks like if they are carried forward as an asset it will cause te profit/loss report to 'break' and need some manual calculations?

With regard to being able to sell them, nothing is guaranteed as they are very intangible so may never find a buyer. Am I correct in thinking that if I don't think any of the websites will sell, the entire amount (i.e. £8,000) will be expenses for that accounting period?

 

[Anna Chandley]

Thanks Scalloway and Anna. If I wanted to do it in the way Scalloway suggests, how would this be done in Kashflow as it looks like if they are carried forward as an asset it will cause te profit/loss report to 'break' and need some manual calculations?

With regard to being able to sell them, nothing is guaranteed as they are very intangible so may never find a buyer. Am I correct in thinking that if I don't think any of the websites will sell, the entire amount (i.e. £8,000) will be expenses for that accounting period?

I haven't used kashflow so don't know how that works. The normal process would be to post all purchases to the appropriate cost of sales account in the P&L then at the year end make a manual journal entry. If year end stock was £2000

Debit Stock in balance sheet £2000
Credit Closing stock in profit and loss account £2000


The following year end you would
Debit Opening stock in P&L £2000
Credit Stock in balance sheet £2000

then
Debit Stock in balance sheet £new year end value
Credit Closing stock in profit and loss account £new year end value

If you don't think any of the websites will sell then their value is £0, closing stock is £0 so all the purchases costs during the year remain as cost of sales.

anna

 

[theaffiliate]

Thanks again Anna, appreciated (I don't think people express their thanks for free advice enough on here!).