I have a friend who has asked me a simple question regarding stock in his small company accounts.
When valuing his stock, he values it at cost since this is always lower than NRV - easy!
However, some of his stock is slightly out-dated (i.e. they're not the latest releases of the goods he sells). For example, he bought some stock for £20 each, and he can certainly sell it for more than £20. However, none of the distributors he buys from would sell it for £20 now. To purchase the same item, he would probably only need to pay £10 for it now. He seems to think that holding the stock in his accounts at £20 each seems inflated, when the cost price would only be £10 if you actually bought it from the same source today. Is there an argument for writing down stock based on current list prices for identical stock lines? Is there ever a time when using the Cost vs NRV model actually gives too high a value?
My instinct is that holding it at £20 is correct, because FRS 102 seems pretty clear, and doesn't give much alternative in this simple scenario. The closest I can see is FRS102 para 13.16, which states that you can use "most recent purchase price" for valuing stock. However, this wouldn't apply in this situation since he hasn't actually bought this line of stock recently, he can just observe from public list prices that if he were to purchase it now, it would be less.
Any thoughts would be helpful.