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EB 10: Replacement price
or “How to value closing stock using the replacement price method”
You could also call this:

“How to calculate the lowest possible value of your unsold goods”

You can choose to value your closing stock at its market selling value if it’s less than what the stock cost you. To find the market selling value, you need to figure out how much money you would normally get if you sold the stock. Then, you subtract two things from that amount: how much it would cost to finish making the stock, and how much it would cost to sell it.

When you’re working out how much it costs to sell the stock, you should think about things like moving the stock around, insurance, paying people who help sell it, and any discounts you might give to buyers. If you make financial statements, these costs should be included when you calculate the net realisable value.

If you decide to use market selling value for your closing stock, you need to be able to prove that value. If you can’t prove it, you have to use one of these other ways to value your stock instead: cost (as described in sections EB 6 to EB 8 or EB 15 to EB 18), discounted selling price (as described in section EB 9 or EB 19), or replacement price (as described in section EB 10 or EB 20).

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Next up: EB 12: Valuing closing stock consistently

or “Consistent method for valuing end-of-year stock”
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Part E Timing and quantifying rules
Valuation of trading stock (including dealer’s livestock)

EB 11Market selling value

  1. A person may determine the value of their closing stock at its market selling value if the market selling value is less than the cost of the stock.

  2. The market selling value of closing stock is found by taking the amount that the person would normally expect to receive in the ordinary course of business from the sale of the trading stock and subtracting the following costs:

  3. the estimated costs of completion; and
    1. the expected costs of selling it.

      1. For the purposes of subsection (2)(b), the expected costs of selling the stock are the costs that the person usually incurs for the following:

      2. transport:
        1. insurance:
          1. sales commissions:
            1. discounts to buyers.

              1. For the purposes of subsection (3), if the person prepares financial statements, the costs must have been taken into account in the statements in calculating net realisable value.

              2. If the person uses market selling value to value closing stock, they must be able to substantiate that value. If they cannot, they must use 1 of the following to value their closing stock:

              3. cost, as described in sections EB 6 to EB 8 or EB 15 to EB 18; or
                1. discounted selling price, as described in section EB 9 or EB 19; or
                  1. replacement price, as described in section EB 10 or EB 20.

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