Stock adjustments Flashcards
Valuation of stock
must be properly valued - if not adjustment needed
valued at end of accounting period at lower of cost and NRV (selling proceeds less selling costs)
stock adjustments on cessation
valuation depends on identity of buyer:
a) non-uk trader
b) UK trader who’s not ‘connected’ with the vendor
c) UK trader who’s ‘connected’ with vendor
if accounting valuation is different to legislation then adjustment is needed
stock transfer to non trader or a non UK trader
must be valued at market value
HMRC uplift the price of the stock to it’s MV at the date of transfer.
HMRCs last chance to tax the stock before it leaves UK
to unconnected UK trader
If vendor is not connected (ie a commercial arms length sale)
take actual sales consideration to be value of stock i.e. what it was sold for
No adjustment required
Stock transfers to an unconnected trader - ‘just and reasonable’ provisions
Have been occasions where unconnected parties manipulated the consideration to be paid and received
Just and reasonable provision applies where stock is transferred with other assets - value placed on stock has to be just and reasonable
typically applies where whole business is sold and an all inclusive price is agreed (i.e. stock,PPE, premises, goodwill)
may have to choose MV
where stock sold on it’s own provision doesn’t apply
transfers between connected UK traders
Takes place at MV for trading income purposes
Seller is treated selling stock at MV and buyer buying at that value - Actual consideration ignored
if vendors accounts do not include MV in sales figure - tax adjustment required
Stock transfers between connected UK traders
Joint election is possible between buyer and seller
substitutes higher of either COST or ACTUAL CONSIDERATION instead of market value
Election can only be made if MV of stock is higher than both cost and actual consideration.
