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Valuation of raw materials

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If a company charges customers to dispose of materials that they then turn in to a sellable product how do you account for the material before it's transformed into the sellable product.  

So a stockpile of material that hasn't yet been processed into a product - raw materials - but there's no cost of purchasing the goods in the P&L (as we've charged the customer to dispose of the material) or any labour costs associated with processing yet.  Can you make a stock provision crediting the P&L and debiting the B/S stock code and how should you value the raw material?  I know the cost you can sell the end product for and how much it will costs to process the material to get to this end product.  Any help would be appreciated. Thanks!  

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By tom123
15th Nov 2020 15:03

The stock is valued at the lower of cost and net realisable value.

You have made a sale, which you will report as income.

The only cost (I presume) will be the carriage inwards - which, realistically, you should match in the P&L against the sales income.

Your stock should therefore have a value of nil.

Depending on how your systems work, and quantities etc, I would have no problem valuing each batch at £1 or something - it is harder to track items with nil values through accounting software.

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Replying to tom123:
By Paul Crowley
15th Nov 2020 15:07

'The stock is valued at the lower of cost and net realisable value.'

No more to be said. Basic rule

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By Wastenotwantnot
15th Nov 2020 15:25

Thank you both! Got it!

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paddle steamer
16th Nov 2020 09:37

As you have received the material from your customer and charged them for its disposal, and presumably recognised that income, you do still need to consider what you need to do recognising the costs you will now incur converting said material, if these costs are greater than what you receive eventually for the processed material you likely need to provide for these costs.

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