You MUST keep records that record and explain your trading stock on hand at the end of each accounting period. The stock-on-hand at the beginning and end of each year has to be taken into account in working out whether or not a business has an assessable profit.
What is trading stock?
Trading stock is anything produced, manufactured, acquired, or purchased for purposes of manufacture, sale, or exchange by your business. In certain circumstances, goods are treated as trading stock on hand even though they are not in your or the business’ actual possession, such as
- stock held in the hands of an agent
- stock held in an off-site warehouse
- stock held in a bond store
- stock held in transit.
Valuation of trading stock
The cost of trading stock includes not only its purchase cost but also such things as freight costs and manufacturing costs. The portion remaining unsold (including the cost of work in progress and raw materials) or unused has to be taken into account to prevent expenses for the year being overstated. To determine the correct assessable profits of your business, trading stock on hand at the balance sheet date has to be valued. This generally involves conducting a physical count of the stock (raw materials etc.) remaining unsold or unused.
Documentary evidence of such a stocktake should be compiled and kept with your other business records. A list describing each article of stock on hand (including raw materials and work in progress) and the value of the stock etc. should be prepared. This list should also include the following information:
- who did the stocktake
- how the stocktake was done
- the date of the stocktake
- the basis of the valuation.
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*Article from “A Guide to keeping business records”