Inventory in the UK

1. Inventory in the UK A brief guide

2. What is inventory ? Inventory or stock is the term used for items or materials that are to be sold, or for materials to be used in production.

3. Valuation of stock Two methods of valuation are in common use in the United Kingdom. FIFO = First In First Out The method makes the assumption that the first stock, oldest stock, that was purchased will be the first that is used. AVCO = Average Cost At the start of the period the average cost of any items held in stock is calculated. When new stock is purchased a new average cost is calculated. Under International Accounting Standards the use of LIFO (Last In First Out) is no longer permitted. See IAS 2.

4. Exempted inventories Exempted from the measurement requirements are: Inventories of producers of agricultural and forest products. Agricultural products after harvest. Minerals and mineral products. These are all measured at net realisable value in accordance with the established practice of these industries. The inventories of commodity broker traders who measure inventories at fair value less cost to sell.

5. Other effects of IAS2 IAS 2 does not permit exchange differences in recent acquisition of inventories invoiced in a foreign currency to be included in the cost of inventories. IAS 2 requires separate accounting for finance cost of inventories purchased with deferred settlement terms. The difference between the purchase price for normal credit terms and the amount paid is recognised as interest expenses over the period of financing.