Stock valuation: cost, average cost, count differences and impairment

Gönül Hanım the hardware shop owner's paint at three prices

The rules described in this lesson are those of Turkish law.

The best-selling item in Gönül Hanım's hardware shop is interior wall paint. In 2026 she bought the same paint three times, and each time the price went up:

During the year she sold 200 tins; on 31 December 100 tins were left on the shelf. Her mali müşavir (accountant) asked: "At how many lira shall we record the 100 tins on the shelf?"

Think of the minced meat at the butcher's. What arrives in the morning and what arrives at noon get mixed on the same counter; nobody knows which kilo came from which batch. The paint tins get mixed on the shelf too. That is why a calculation route is chosen.

The rule: cost

Goods you bought in order to sell are valued at the end of the year at cost (maliyet bedeli) (Tax Procedure Law, Vergi Usul Kanunu, VUK, art. 274). Cost is found by adding to the purchase price on the invoice the costs, such as delivery, of bringing the goods to the shop (VUK art. 262). Not the sales price on the label. This rule applies on the balance-sheet basis (bilanço esası) and with a business book (işletme defteri) alike; if you are under simplified taxation (basit usul) the rules are different, so ask your mali müşavir. We explained how to do the count in the lesson The December count; here we look at how many lira the counted goods are recorded at.

When the same goods are bought at different prices, two routes are used in practice.

Average cost

The year's total purchase amount is divided by the total quantity: 150,000 ÷ 300 = 500 lira. The 100 tins on the shelf are 50,000 lira. The cost of the 200 tins sold is 100,000 lira.

(There is also the "moving average" route, which recalculates the average after each purchase; its result comes out slightly different. If stock is tracked with a program, that is usually the one used.)

First in, first out

It is assumed that goods bought first are sold first. The January and May batches count as sold, and the 100 tins bought in September count as left on the shelf: 100 × 600 = 60,000 lira. The cost of goods sold is 90,000 lira.

When prices are rising, first in, first out shows this year's profit a little higher. Next year the difference reverses, because the year-end stock is the following year's opening stock.

On the tax side, the "last in, first out" route is not accepted. Whichever route you choose, use the same one from year to year; changing the method shifts profit between years, and you will be asked for the reason. Make the choice with your mali müşavir.

Count difference: when the records and the shelf don't match

If you keep stock records, the records show 100 tins and there are 92 tins on the shelf. Or the other way round. If you have no stock records, you can make this comparison from the purchase and sales invoices for a few of your best-selling products. When a difference turns up, first find the reason. Most often it is one of these:

• A purchase or sales invoice was not entered in the records.
• A customer return or a return to a supplier was not processed.
• Goods that broke, spilled or spoiled were not noted.

In a tax audit, an unexplained shortage can raise the question of sales without an invoice, and an unexplained surplus the question of purchases without an invoice. So don't hide the difference; write down the reason and give it to your mali müşavir.

Small losses that are in the nature of the work, that is, wastage (fire) (spilling, breakage, evaporation), are a cost of the work if they are within reason. What is reasonable varies by sector; document it with a written record. The tax and VAT consequences for goods that are stolen, lost or destroyed, however, are different from wastage. For example, the VAT you deducted on the purchase of goods that are stolen, lost or burned in an ordinary fire is corrected (VAT Law art. 30/c). In earthquakes and floods, and in fires in places where the Ministry of Treasury and Finance has declared force majeure (mücbir sebep, an extraordinary situation beyond one's control) because of the fire, this correction is not made. Ask your mali müşavir about each case separately.

Impairment: if the goods' price has fallen

Goods can lose value while they sit on the shelf. The law has two separate cases:

• Price fall: If on the valuation day the sales price has fallen 10% or more below cost, the goods can be valued at fair value (emsal bedeli), that is, the market value on that day, instead of cost (VUK art. 274).
• Spoilage and damage: If the value of the goods has fallen significantly because of fire, earthquake or flooding, or because of spoiling, rotting, breakage and the like, fair value is again applied (VUK art. 278). In this case the value is mostly set, on application, by the assessment commission (takdir komisyonu), that is, the tax office's valuation board.

In Gönül Hanım's storeroom, 20 tins of paint turned out to be damaged by damp. She cannot say "I'll record these at half price"; a fall in value needs documents. Her mali müşavir will decide which route to follow. Gönül Hanım's job is to set the tins aside, photograph them and report them to her mali müşavir with a dated note.

Gönül Hanım's year end

Gönül Hanım settled on average cost with her mali müşavir. She added a column to her count list: "last purchase date". Goods that had not sold for a year showed up in that column on their own. You saw why money waiting on the shelf matters in the lesson Stock: money waiting on the shelf, and how many days it takes stock to turn into cash in the lesson The cash conversion cycle.