Skip to content
Menu
Join our waitlist
TaxPost is in invite-only testing. Join our waitlist to hear when you can order.

How do I value my company's stock and unfinished work?

Cost, or selling value if lower.

Selling value is what you expect to get for the stock, less the costs still needed to finish and sell it. At each year end, check your stock and write down anything now worth less than it cost.

Published

At a glance

Applies to
Goods you hold to sell, goods you are part way through making, and materials you use up making goods or providing services
Where it shows
There is no line. The rules point to "". Stock you sell becomes a cost in the year you record the sale
If you get it wrong
Stock left at cost when it is worth less makes your profit and your assets too high

Sources

This entry is general information for directors of UK private limited companies, not advice about a particular company.

Does this apply to me?

  • You buy or make goods to sell. Yes, this applies.

  • You provide a service and use up materials or supplies doing it. Yes, for those materials and supplies.

  • You have a job for a customer that is not finished at your year end. Yes, this applies. See "Unfinished work for customers".

  • You farm. Not for the living animals and plants you farm, or for your produce at the point of harvest. Other rules cover them.

Sources

What to do

  1. Work out what each item cost. Include what it took to buy or make it and get it to where it is now, in its present state.

  2. Work out its selling value. That is the price you expect to get, less the costs still needed to finish and sell it.

  3. Use the lower of the two. If the is lower, the difference is a loss in this year's accounts.

  4. Check again each year end. If the cause goes away, or prices clearly recover, reverse the . Never reverse more than you wrote off.

Sources

How it works

Stock on your balance sheet: cost, or selling value if lower

goes in your accounts at the lower of two figures. One is what it cost. The other is what you expect to sell it for, less the costs still needed to finish and sell it.

At each you check whether any stock is worth less than its value in your accounts. For example, it may be damaged, out of date or selling for less. If it is, you write it down and record a loss.

Why? The standard treats stock as when its value in the accounts cannot be fully recovered. So your never shows stock at more than you can get back from it.

For example

Say some prints cost you £600. You expect to sell them for £250, with £50 of selling costs.

Selling value
£250 − £50
£200
Value in the accounts
£200

The prints go in at £200, and the £400 difference is a loss this year.

If the cause goes away, or selling prices clearly rise, you reverse the write-down. The reversal stops at the amount of the original loss. So stock never goes back above what it cost. must use cost-based figures only. They cannot stock upwards.

The micro-entity balance sheet has no stock line. The layout does not say where stock goes. The law calls assets not meant for continuing use in the "". The fuller layout for larger companies lists stock under current assets. Taken together, these point to "Current assets".

None of the four notes a micro-entity must give is a stock note. The one exception is stock given as security; see "Less common situations".

Sources

The detail The exact rules

paragraph 10.3: a micro-entity shall measure inventories at the lower of cost and .

Paragraph 10.18: a micro-entity shall assess at the end of each reporting period whether any inventories are impaired, that is, the is not fully recoverable (for example because of damage, obsolescence or declining selling prices). If so, it recognises an impairment loss. Paragraph 10.19: when the circumstances no longer exist, or there is clear evidence of an increase in selling price less costs to complete and sell because of changed economic circumstances, the impairment is reversed, limited to the amount of the original impairment loss.

FRS 105 Appendix III paragraph A3.8: micro-entities may not apply the or the Rules, so only the Historical Cost Accounting Rules.

A micro-entity need show only the items in the Section C of Schedule 1 to SI 2008/409 (paragraph 1(1A)). Those formats have one "Current assets" item and no stock item, and do not say which item holds stock. SI 2008/409 Schedule 8 paragraph 3 defines current assets as assets not intended for use on a continuing basis in the company's activities. The Section B formats for other companies list "Stocks" under "C. Current assets". The are presumed to give a true and fair view (Companies Act 2006, section 396(2A)).

FRS 105 paragraph 6.2 requires four notes of a UK micro-entity: , numbers, advances, credit and guarantees to directors, and financial commitments, guarantees and contingencies.

Sources

What goes into the cost figure

Cost is everything it took to buy or make the stock and get it to where it is now, in its present state.

For bought-in goods, that is the purchase price, import duties and any taxes you cannot reclaim, plus and handling. Take off and rebates. If you pay later than normal credit terms, use the cash price. The extra you pay for waiting counts as interest, not stock.

For example

Say you buy paper for £1,000. Delivery costs £60, and the supplier gives a £100 trade discount.

Purchase price
£1,000
Delivery
£60
Trade discount
−£100
Cost of the paper
£1,000 + £60 − £100
£960

If you make goods, cost also includes direct labour. It also includes a share of your , the indirect costs of producing. The share of fixed overheads is based on your normal level of output. Overheads not shared out this way are a cost of the year.

Some costs stay out of stock. They are a cost of the year you spend them. Examples are abnormal waste, most storage costs and selling costs. So are office overheads that do not help get the stock to where it is, in its present state.

Why? Only costs of getting stock to where it is now, in its present state, count. Selling costs do not do that.

Some items keep their own individual cost. These are items that are not normally interchangeable, and goods or services made and kept apart for a specific project. For other items, the standard sets the methods you can use.

Sources

The detail How cost is worked out

FRS 105 paragraph 10.4: cost includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Paragraph 10.11: other costs are included only to the extent that they are incurred in doing so.

Paragraph 10.6: costs of purchase comprise the purchase price, import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are . Paragraph 10.7: if payment is deferred beyond normal credit terms, the purchase price is the cash price available at the date of purchase, and any excess is recognised as interest.

Paragraph 10.8: costs of conversion include costs directly related to the units of production, such as direct labour, and a systematic allocation of fixed and variable production overheads. Paragraph 10.10: fixed production overheads are allocated on the basis of the normal capacity of the production facilities; unallocated overheads are recognised as an expense in the period in which they are incurred.

Paragraph 10.12: examples of costs excluded from cost and recognised as expenses when incurred are (a) abnormal amounts of wasted materials, labour or other production costs; (b) storage costs, unless necessary in the production process before a further production stage; (c) administrative overheads that do not contribute to bringing inventories to their present location and condition; and (d) selling costs.

Cost formulas. Paragraph 10.16: items not ordinarily interchangeable, and goods or services produced and segregated for specific projects, use specific identification of their individual costs. Paragraph 10.17: other inventories use the , first-out (FIFO) or formula, with the same formula for all inventories of a similar nature and use. The last-in, first-out method (LIFO) is "not permitted by this FRS". Paragraph 10.15: the standard cost method, the retail method or most recent purchase price may be used if the result approximates cost. The retail method reduces the sales value of the inventory by the appropriate percentage gross margin.

Sources

Stock in your profit and loss account

Stock you sell becomes a cost of the year in which you record the income from that sale. That way, the cost of the goods lands in the same year as the income from selling them. Stock you have not yet sold or used stays on your balance sheet.

For example

Say you buy £900 of paper in November 2026 and have not used it by 31 December 2026.

It stays in your balance sheet at £900. It is not a cost of 2026.

Stock used to build an asset for your own business, such as equipment, follows the rules for that asset instead.

The micro-entity has eight lines. None is for changes in stock. The layout also does not say which line carries a stock write-down.

Sources

The detail Which profit and loss line

The Section C profit and loss format is: turnover; other income; ; ; depreciation and other amounts written off assets; other charges; tax; profit or loss. Item E is "Depreciation and other amounts written off assets". The Section B formats for other companies have a separate item for amounts written off current assets, to the extent that they exceed write-offs which are normal in the undertaking concerned. FRS 105 paragraph 10.20: when inventories are sold, the carrying amount is recognised as an expense in the period in which the related revenue is recognised. Paragraph 10.21: inventories allocated to another asset, for example as a component of self-constructed property, plant or equipment, are then accounted for under the section for that type of asset.

Sources

Unfinished work for customers

Stock used on a customer's job becomes a cost when you record the income from that job. Our working: this follows from the rule for stock you sell, above.

Some jobs earn income as you go. This applies if the customer the work as you do it. It also applies if the work has no other use to you and you can enforce a right to be paid for work so far.

Regular services such as cleaning also earn income as you go. Otherwise, you record the income when the customer takes control of the work, for example when it is handed over.

For work that earns income as you go, you record income in line with your progress. If you bill a fixed rate per hour, you record what you have a right to invoice.

Costs of carrying out a contract are usually a cost of the year you spend them. There are two exceptions:

  • costs that another rule covers, such as the stock rules, follow that rule

  • costs that create something for the rest of the work, which you expect to get back, go on the balance sheet as an asset

Sources

The detail The revenue rules

FRS 105 paragraph 18.34: revenue is recognised when (or as) the micro-entity satisfies a promise to transfer a good or service, which is when (or as) the customer obtains control of it. Paragraph 18.37: a performance obligation is satisfied over time if (a) the customer simultaneously receives and consumes the as the micro-entity performs (for example routine or recurring services such as a cleaning service); (b) the performance creates or enhances an asset the customer controls as it is created or enhanced; or (c) the performance does not create an asset with alternative use to the micro-entity and it has an enforceable right to payment for work carried out to date. Paragraph 18.39: otherwise it is satisfied at a point in time.

Paragraph 18.41: revenue over time follows progress towards complete satisfaction. Paragraph 18.45: where the micro-entity bills a fixed amount for each hour of service, it recognises revenue in the amount it has a right to invoice.

Paragraph 18.48: costs of fulfilling a contract are an expense when incurred unless they (a) are in scope of another section (for example Section 10 Inventories), or (b) give rise to resources the micro-entity will use to satisfy performance obligations in the future and are expected to be recovered; if so, they are an asset. Paragraph 18.49: that asset is then measured at cost less accumulated and any accumulated impairment losses.

Paragraph 1.11: when a micro-entity first applies the Periodic Review 2024 amendments, it applies the revised Section 18 prospectively to contracts that begin after that date, and does not change its accounting policy for contracts in progress.

Sources

Service businesses

For periods starting on or after 1 January 2026, the standard has no separate rule on the cost of a service provider's stock. That leaves the general cost rule above. Materials or supplies you use up in providing a service still count as stock.

The revenue rules for customer contracts also changed from the same date. They apply only to contracts that start after your company first uses the new rules.

Sources

The detail Recent changes

The February 2026 Adapted formats amendment deleted FRS 105 paragraph 10.13 and its subheading, "Cost of inventories of a service provider". It also amended paragraph 1.10 so that this change forms part of the Periodic Review 2024 amendments, which apply for beginning on or after 1 January 2026. Early application is permitted only if all the amendments are applied at the same time.

The 's standards page labels that amendment "Effective from: 1 January 2027". That date belongs to the amendment's paragraphs 1.72 and 1.73.

The Periodic Review 2024 introduced the five-step revenue model into FRS 105.

Sources

Consequences

If you get it wrong

If is worth less than it cost and you do not write it down, your profit and your assets are too high.

Writing stock up above cost is not allowed. A reversal stops at the amount of the original loss.

Your company's taxable starts from accounts drawn up under normal accounting rules, with any changes the tax law requires. So a wrong stock figure can also make your tax figure wrong.

Sources

Less common situations

You sell stock after the year end, before the accounts are approved. The sale may show what the was worth at the . The standard gives this as an example of an event you adjust the accounts for.

Stock is given as security. If stock secures your company's , or contingencies, the notes must say what kind of security it is.

Sources

Worked example: Bramley Studio Ltd

Bramley Studio's accounts for 2026 show profit before tax of £27,500, of £31,900 and of £27,600.

For this example, say that at 31 December 2026 Bramley holds paper and ink costing £900. It also holds prints costing £600 that will sell for £250, with £50 of selling costs. Say this is already inside the £31,900 at cost.

Stock at 31 December 2026

  • Paper and ink

    £900

    At cost. Nothing suggests it is worth less

  • Prints

    £200

    Selling value £250 − £50, which is below the £600 cost

  • Closing stock

    £1,100

    £900 + £200

Sources

Effect of the write-down

  • Write-down on the prints

    £400

    £600 − £200

  • Profit before tax

    £27,100

    £27,500 − £400. The layout does not say which line carries the £400

  • Current assets

    £31,500

    £31,900 − £400

  • Net assets

    £27,200

    £27,600 − £400, before any change to the tax charge

Sources

If print prices recover later, Bramley can write back no more than £400. The creates no , the future tax effects of this year's figures. Micro-entity accounts never show it.

Sources

Not covered here

Any tax adjustment to the figure, and farm animals, plants and produce. See how the micro-entity accounts are laid out, events after the year end and why there is no deferred tax.

Where this comes from

74 official sources. Open a group to see them.

The law 22 sources
HMRC 9 sources
GOV.UK 9 sources
Companies House 3 sources
FRC 31 sources

Want it prepared for you?

We prepare and file your accounts and Corporation Tax return.

Join our waitlistSee what is included