Stock valuation and depreciation

Stocks consist of all materials held for eventual resale, whether these be raw materials, work in progress or stocks of finished goods. The accounting standard SSAP 9 sets out that stocks should be valued at whichever is the lower of cost or net realisable values.
The standard defines cost as 'that expenditure which has been incurred in the normal course of business in bringing the product or service to its present location and condition'.
For a trading business such as a retailer, cost will therefore be the purchase price plus the cost of delivery to the retail store. For a manufacturing business, the cost of finished goods will be the direct costs of labour, materials and expenses, and in addition will include factory overheads absorbed into the product.
Net realisable value is the selling price of the stock less all further costs to be incurred before a sale is