B2.614 Change in basis of stock valuation
HMRC's current position regarding the change in basis of stock valuation is set out in the manuals1. HMRC states that the two valid methods of stock valuation are:
• the lower of cost and net realisable value, and
• mark to market
A change from one valid basis to another can only occur between these two bases. If an entity changes the estimation technique used to make it more accurate, that is not a change in basis. However if there is a change in the tax adjustment required that would be a change in basis.
A valid basis is one that is in accordance with the law or practice applicable for that accounting period. HMRC states that the change in basis will occur either when their view of tax law alters so that adjustments made to accounts profits to determine the taxable profits change, or there is a change in accounting policy.
A valid basis could also consist of accounts which conflicted with tax requirements but which had tax computation adjustments to produce the same result as accounts that conformed to tax requirements. Where a business which has adopted this route at arriving at a valid basis changes the