Your annual stocktaking requirements
If your business buys or sells goods, you usually need to do a stocktake to value your stock at the end of each financial year. This is because the change in the value of stock on hand is taken into account in determining your profit or loss for the year.
You will need to do a stocktake if:
- your business turnover is greater than $2 million; or
- the difference between your stock level at the beginning and end of the financial year is more than $5,000 (you can make a reasonable estimate to determine this).
If a stocktake is required, you should do it as close to the end of the financial year as possible. Your stock should normally be valued at the lesser of:
- the cost of the stock (what you paid for it); or
- the net realisable value (what you could sell it for).
If you plan on doing a stocktake, your records should include the following:
- a list describing each item in hand and its value
- who conducted the stocktake
- how and when the stocktake was done
- who valued the stock and the basis of the valuation
Doing a stocktake also serves as a management tool, as it enables you to determine how well your stock is being managed during the year. It enables you to better understand whether stock is being lost to theft, spoilage or incorrect stock picking. It also enables you to better understand the value of goods being taken for personal use for example.
Gateway Tax & Advisory has considerable practical experience across a range of industries conducting physical stocktakes and preparing accurate costings of the stock counted.