Opening Stock estimate

Opening Stock estimate

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Hi and thank you in advance, all pointers gratefully received.

I have a new sole trader client who trades on Ebay.  He has an accurate closing stock figures but only an estimate of opening stock for the year. 

How would you advise to deal with this situation?  Do I need to make a note on his Self Assessment about this estimate?

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By tonycourt
11th Sep 2012 21:10

Yes, you need to indicate any estimates affecting the SA, butI would like a little more info before replying.

Why was the opening stock value estimated, e.g. was it because all or some of the stock was introduced by the sole trader? If not what was the reason?

TC

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By alattax
12th Sep 2012 09:19

Is the client new to you, or new to trading?

If it is the second or later period the estimate may well have been described on a previous return and there would be no need of additional mention unless it impacts noticeably on the gross profit %age. Your accurate stock figure this year will correct the position, and between the two years the profits will be correct. Perhaps the accurate figure this year casts serious doubt on the previous accounts in which case an explanation and/or correction may be required.

If this is a new trade different considerations apply:-

Why call it stock and not purchases? Are there personal items for sale which are not part of the trade? When did trading really commence?       

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By Cruncher42
12th Sep 2012 16:17

More info

Hi thank you for feedback so far,

Client is new to me and to trading this being the first year. Opening stock was accumulated over some time before trading and value is estimated because receipts were not kept.  

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By tonycourt
13th Sep 2012 10:07

Estimate, but on two different basis

Because you don't have details of actual cost you must make estimates.

Where a purchase was made before commencement of trade, but with the intention it should be sold through the business, you can estimate what it cost - your client's recollection of what he paid for each item will be the basis.

Where the goods were bought by your client for personal use and he subsequently decided to sell them through the business he should estimate the market value at the time he decided they were to count as stock.

Because the purchases were made privately they should show on the balance sheet as cash introduced.

And just to reiterate - yes you should mention in the SA return that the accounts include estimates. I would suggest you give a global figure of the estimated purchases on the return form, but you should keep a detailed list of each item just in case HMRC ask questions.

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By Cruncher42
13th Sep 2012 15:04

That is brilliant.

Many thanks.

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