Specific Identification – this method is used for inventory items that are one-off bespoke items or produced for specific projects.Once the cost has been established, there are several valuation methods permitted under UK accounting standards, which are: – Factory management costs and administration – Maintenance of plant, equipment, factory buildings – Depreciation of plant, equipment, factory buildings – Indirect labour (to include: gross wages, employers NIC, pensions, employee benefits)
– Indirect materials (adhesives, packaging etc.) – Direct labour (to include: gross wages, employers NIC, pensions, employee benefits) These costs should be included to the extent that they are directly attributable to the purchase of inventory.Īny trade discounts or rebates should be deducted from the cost amount.Ĭost of conversion (work in progress) must include:Ĭosts directly related to converting raw materials into finished goods These costs should be included unless recoverable from the relevant authorities. Inventory should be recorded at the spot rate at the date of the transaction if purchased in a foreign currency. Many SME business’ value their inventory based on the most recent purchase invoice from their supplier as this is the easiest method, however, is this accurate and what about the valuation of work in progress?īelow is a summary of what should make up the calculation of “cost” for each line of inventory Cost of purchase must include UK Accounting Standards (FRS102) state that inventory must be held in the company records at the lower of cost and the estimated selling price less costs to complete and sell. However, do you know the impact of ensuring you have inventory recorded at the correct value? We all know the importance of holding the correct inventory levels in our business, ensuring we meet customer demand, yet minimising stock holding costs and risks of obsolescence.
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