B2.613 Valuation of stock—market value
The purpose of valuing stock at market price instead of cost is to provide for an anticipated loss on sale. The loss expected must be such as will arise on a sale in the ordinary course of business. The question as to what goods in stock are worth on a given day involves the contemplation of some market; it would not be right to value goods at a figure which could be obtained by having a break-up sale, or a forced sale1. The contemplation of a market involves two possibilities; the market in which the goods were bought and that in which they will be sold.
The first may be described as the replacement cost of the stock; the second is its realisable value. However, where a sale could not be effected without incurring further expenditure this should be allowed for, the result being known as 'net realisable value'.
FRS 1022 s 13 refers to net realisable value as 'estimated selling price less costs to complete and sell'. It is the expected sale price of the relevant stock in the condition in which it is expected to be sold in the trader's normal selling market. From that value the estimated further costs are deducted which will have to be incurred to get the stock into its normal sale condition to arrive at the net realisable value. It may be less than cost because of deterioration, obsolescence, or changes in demand.
At the reporting date, however, there may