STOCKTAKE – Tips & Traps

Principles you can apply to counting Trading Stock and Fixed Assets

Businesses should stocktake on a regular basis, as well as annually at the end of the financial year.  An accurate stock count and subsequent valuation provides accurate figures for the business’ regular management accounts as well as the year-end financial statements.

The level of stock is a major determinant of the profit of the business for the year, which in turn dictates the amount of tax that is payable. For this reason alone, it is important that all inaccuracies are eliminated.  But a regular, accurate counts also helps detect fraud and theft while also assisting in the management of stock re-order levels, ensuring that the business is not carrying too much stock, while also making sure that there is always stock on hand when customers want to buy.

Below are some gems learned over 40 years as an accountant and observer of stocktakes on how to plan organise and execute your stocktake in a manner that is world best practice and which will guarantee an accurate count.

Feel free to contact us on (03)9585 7555 ornoel@mktax.com.auif we can help you with any aspect of your stocktake.

Requirement of a Stocktake

  • Physical count – no guesses
  • Perpetual records are OK if:
  • Stocktakes are done regularly during the year
  • All stock is counted at least once during the year

Preparation for the Stocktake

  • Plan ahead.
  • Prepare written instructions.
  • Spell out your expectations of how the count will be conducted.
  • Written instructions give staff something to refer to.
  • Appoint a Person responsible, a reference point for problems.
  • Person should have authority to order a recount.
  • Issue instructions well beforehand.
  • Meet with staff to discuss and clarify issues.
  • (Re)organise the store to facilitate counting.
  • Tidy store.
  • Move like stock together.
  • Ensure all stock has clearly marked product codes.
  • Obsolete stock – determine and move out.
  • Differentiate Trading stock vs. Plant.
  • Determine locations of all stock.
  • Different warehouses/stores.
  • Consignment stock at other sites.
  • Either count or request independent confirmation.
  • Allow ample time.
  • Contingency plan.
  • Stop all stock movements (if possible)
  • Avoid missing stock, or double counting
  • Goods in after cut-off – kept separate

Count

  • Counting teams
  • Two person per counting team – more accurate
  • Separate team to double count or cross-check
  • Recount if cross-check error rate is too high
  • Count systematically
  • Start at one end of store and work through systematically
  • Count everything
  • Laybys
  • Slow moving stock
  • Stock belonging to others – mark clearly
  • Count all locations or obtain independent confirmation
  • Count Work-in-progress noting stage of completion
  • Count obsolete / slow-moving stock

Stocktake Count Sheets

  • Prenumbered
  • Ensure that they are all accounted for at the end of the count
  • Signed by counting team responsible
  • Allocates responsibility, facilitates rechecking
  • Sheets have stock/product code only; no details of theoretical holding.
  • Forces an accurate count
  • Avoids preconceived counting – power of suggestion
  • Leftovers will be pocketed
  • Ensure adequate space for description

Valuation of Stock

  • Ensure all stock is owned
  • No charges or liens
  • Be careful with ownership of Stock in Transit
  • Exclude:
  • Own plant and spare parts
  • Consumable aids to manufacture
  • Goods hired out
  • Value stock LINE-BY-LINE at the Lower of:
  • Cost
  • Market value
  • Replacement cost at end of year
  • Special valuation method
  • Reasonable value “if warranted because of obsolescence or other special circumstances”
  • Reduced value but saleable in foreseeable future
  • For Manufactured goods – Full absorption costing materials labour portion of fixed and variable overheads – Direct costing not acceptable
  • Write down slow-moving stock
  • Write off Obsolete stock
  • Record the company’s write off policy

Fixed Asset Count

  • Consider annual inventory of fixed assets.
  • Estimated economic life should be noted.
  • Model # / Serial # etc. for insurance purposes.

Feel free to contact us on (03)9585 7555 ornoel@mktax.com.auif we can help you with any aspect of your stocktake.

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