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Help with stock valuation

I need guidance on how to value stock between geographies

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Hi

Please can someone help with some guidance. For a firm that manufactures product in China and then transits completed goods to UK and Europe for sale, how should the valuation of stock be determined at any point of time? My understanding is that 1) raw materials held in China would be valued at spot rate on date material is purchased; 2) stock in transit will be valued at cost plus shipping (valued at spot rate on date transit is paid) and 3) finished goods held in UK and Europe will be valued using functional currency (GBP) and any FX impact at point of sale will go through P&L rather than impact inventory. Is that right?

 

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By paul.benny
04th Oct 2021 13:20

First of all you need to unpack the arrangement properly, identifying the parties and the transaction steps:
- does UKCo really own the materials in China? Or are they actually owned by Manufacturer? If the former, why? That's a commercially risky arrangement.
- who is Manufacturer? A subsid of UKCo or a third party?
- what are the INCO terms? Specifically, when does title pass? Goods in transit should be valued in seller at cost excluding freight until title passes; at that point, the buyer values at cost plus freight.

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Replying to paul.benny:
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By CB113
04th Oct 2021 13:54

Manufacturer is a subsidiary of UKCo. UKCo is selling its goods to retail outlets in Europe so sale happens once goods have arrived at retail outlet

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By paul.benny
04th Oct 2021 14:25

You've still not spelt out the exact arrangements. I think you're saying Manufacturer is a converter of UKCo materials - is that right?

And why are you asking?
- is the question about what fx rate to use?
- or what to declare at customs - both on arrival in UK and on arrival in EU. If you're shipping China-> UK -> EU there may also be duty due on arrival in EU but UK relief may be available
- or for accounts
- or for tax - unless you're below the threshold, transfer pricing is an important consideration
- or for VAT. Don't forget you probably need to be VAT registered wherever you're holding stock.

The values aren't necessarily different but there are lots of considerations.

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By williams lester accountants
05th Oct 2021 10:23

This seems to be a business of some complexity, so if you are the accountant and having to ask on a public forum for the answers to this then you are way out of your depth.

I could contract with you or your client and give you answers, including to some questions you have not even thought to ask yet, but it would cost you a significant sum I would imagine.

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