Hi, I saw a question concerning computers being donated & then sold with some refub cost & that is similar to a situation I am in. I need some advice please.
My business also receives donated items to be sold but there is no added cost involved. The items are received in bulk & classed as stock.
The accounting entries have never been done before & I have now valued the stock at say £8k.
Looking at my accounts package it seems that to do a year end entry I would need to dr stock (balance sheet) & then cr stock (purchases in p&l). Having a dr entry in the bs makes perfect sense but having a cr in the p&l for purchases which increases our yr end profit just looks wrong.
Can someone please either put my mind to rest or tell me what I should be doing?
Stock is normally shown in the accounts at the lower of its cost or net realisable value. Although the stock may be worth £8k, the cost to the business is £nil. A year end stock adjustment isn't required.
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Pearce & Co - Chartered Accountant and Chartered Tax Adviser
That's a fascinating reply & not what I was expecting!
So, from what you're suggesting, the donated stock should not be accounted for in our books at all because there was no cost to the business for it's purchase.
However, I have a warehouse full of stock which surely should be classed as some sort of asset & therefore has a value should the business be sold.
Does this mean that the contents of a charity shop is also not included as stock in their accounts?
I don't think that Cost & NRV should be the applicable approach to donated inventory
I've got to take my boy to the docs so I'll check this up when I get back but in the back of my head there's a bell ringing that donated inventory under UK GAAP should be recorded at fair value which is an exception to the normal rules from SSAP9 / IAS2.
talk later,
Shaun.
p.s. Welcome to the forum Martin.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
This isn't the document that I was thinking of but it's good enough.
Sounds as though my previous reading has been superceded and the requirement now is that donated inventory should be measured to fair value only where such value can be reliably measured and benefits of recognising at fair value outweigh associated costs.
That aside, even donated stock at the lower of cost and NRV is seldom actually cost free as cost of inventory includes the costs associated in bringing it to the condition for sale so at the very least the stock should be valued at any cost of refurbishment to bring it back to a sellable condition.
Hope that the above helps,
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I spent a vast amount of time on both UK & US GAAP but my career took a different path for a few years. Now I'm back dealing with "normal accounts" I'm having to catch up on the changes. From what I understand, there will be further changes to come.
