You have to adjust for the amount of stock that you have on hand at the end of your accounting period to arrive at the correct amount of profit. In calculating the stock value it is usually taken at the value at which you bought it at, that is cost.
However, if you have held the stock for some time, then it is possible that this may not now be worth as much as it originally cost. It is in accordance with conventional accounting practice that the value of this stock should be reduced to this lower figure. The lower the stock figure, then the lower is the your profit, and hence the lower the amount of tax that you pay. Be aware though, HMRC may require you to substantiate why a value below cost has been used.
Once you have counted all your stock, you should identify the slow moving items, or the items for which the value has fallen for other reasons, and ensure that they are valued at the correct amount if this is below cost.
If you would like further advice on this or any matter, please do not hesitate to contact us.
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