How is unsold stock reflected in a P&L statement?

A self-employed used car dealer has unsold cars. Will they be expenses on his P&L statement?

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A former car salesman has decided to start a part-time motor trade business - buying, fixing up and selling vintage cars.

In the process he starts by using family savings to buy half a dozen vehicles and parts. However, the business doesn't take off as quickly as he had hoped and at the end of the tax year he'll have several unsold cars. Whilst he's made a small profit margin from the sale of a couple of cars, he hasn't recouped the money he'd initially invested and hence not taken any personal drawings. 

1. Would the P&L show a net loss?

2. Would the unsold cars be considered an expense on a P&L statement?

3. How would he account for using interest-free family savings to finance the start up?

Many thanks for your input.

Replies (9)

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RLI
By lionofludesch
27th Feb 2017 14:11

Assuming you're not on some cash accounting option, it isn't in your P+L. It's taken out and put on your Balance Sheet.

Your accountant will sort it out for you.

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By hilltop
27th Feb 2017 14:20

If using the cash basis, would the unsold stock be included in the P&L?

Also, what would be the effect of a possible depreciation of the unsold cars?

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Replying to hilltop:
By mrme89
27th Feb 2017 14:27

They won't depreciate.

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Replying to mrme89:
RLI
By lionofludesch
27th Feb 2017 16:56

Mmmmm - nrv could be less than cost.

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Replying to hilltop:
paddle steamer
By DJKL
27th Feb 2017 14:33

Accruals Accounting

Stock is valued at the lower of cost and NRV.

One would only reduce the carrying value of stock below cost, on a line by line basis, if it was considered that the amount realisable for each car was less than the amount paid.

General points

From the nature of your questions you are not an accountant, depreciation has no place re stock held for resale.

Subject to the amounts involved there are also possible vat implications here.

In summary, as advised above, you really ought to speak to an accountant

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By Duggimon
27th Feb 2017 14:27

You don't depreciate stock but you can revalue it if the net realisable value falls below cost, the difference would go to the P&L.

It sounds like this former car salesman ought to engage an accountant, this is basic stuff and important to get right.

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Replying to Duggimon:
RLI
By lionofludesch
27th Feb 2017 17:30

I was thinking more of the everyday sense of the word, rather than the technical accounting definition.

ie it is possible that stock lessens in value.

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By BigBadWolf
27th Feb 2017 15:00

homework ?

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By In a Daze
27th Feb 2017 16:48

It dose look like a typical homework question.

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