Glossary
What is Stock valuation?
Stock valuation is the monetary worth of the inventory held at a point in time, usually based on purchase cost under a method such as FIFO or weighted average cost. It feeds the closing stock figure in your accounts and so affects reported profit.
Stock valuation answers one question: what is the stock you hold worth, at cost, on a given day? That figure becomes closing stock in your year-end accounts, and every rupee of difference in it is a rupee of difference in reported profit.
How it works in practice
Quantity is counted; value is calculated. You multiply what you hold by a cost per unit, and the valuation method decides which cost. The two methods most Nepali shops use are FIFO and weighted average cost.
As an example, a mobile accessories shop buys 100 chargers at Rs 400 each, later buys 100 more at Rs 500, then sells 120.
- Under FIFO, the 120 sold are the first 100 at Rs 400 and 20 at Rs 500. The 80 left are valued at Rs 500 each, which is Rs 40,000.
- Under weighted average cost, all 200 cost an average of Rs 450. The 80 left are valued at Rs 450 each, which is Rs 36,000.
The shelf and the count are the same, but closing stock differs by Rs 4,000. Cost of goods sold differs by the same amount in the other direction.
Common mistakes
- Switching methods from one year to the next. Pick one per product and keep it, so years can be compared.
- Valuing stock at selling price. Stock is valued at cost, and a selling price builds in profit you have not made yet.
- Carrying damaged or expired stock at full cost into the new year. Reduce its value through a stock adjustment with a reason.
- Taking the closing figure from a spreadsheet nobody can reproduce, instead of from the stock records.
Where it matters most
At Asar end, when the fiscal year closes and your accountant needs a closing stock figure they can defend. The fiscal year closing checklist puts the physical count before the valuation check for that reason. How closing stock is treated in your own accounts and tax return is a question to confirm with your accountant.
It matters most for trades with high stock value and moving prices: hardware and building materials, electronics, pharmacies and FMCG distributors.
In Kuver Books, the valuation method is set per product as FIFO or weighted average cost, the inventory position report values stock as it stands, and product profitability applies that method to cost of goods sold, as the reports page describes.
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