Your company stock is shown in the annual report. What is the status of your stock, do you know?
Your company stock
You might remember in the old days that sometimes around December 31st of a year the shop was closed. You noticed the employees working, but you could not enter the shop. The employees were counting the inventory.
The inventory is in a clothing shop hanging in the shop. Every item is accounted for and maybe there is more inventory in storage. That needs counting as well.
Maybe there was a mice problem in the storage and the mice ate their way through your stock. That probably affected the value of the items in a negative manner. The value of the stock degraded.
Why is stock of interest?
During a calendar year the company purchases goods at a certain price and if all is well, these goods are sold at a higher value. The difference is profit. However, if not everything was sold, the profit was actually higher. Part of the purchased goods was not sold yet.
In order to be able to correctly calculate the profit of a company trading in goods, the stock needs to be determined and the value of the stock needs to be set. Then the actual profit can be calculated.
Who does inventory these days?
We indeed wonder, who does. It is rather old fashioned to go manually through the stock to count it. You have a computer for a reason, that is true. Even though we are told in school computers make no mistakes, I am not sure any more.
Have you ever experience that you went to a shop for an article. The attended does see one article in the computer, but not present in the store. That is a mismatch between the computer and the actual stock. Many reasons how that could have happened. Regardless, the stock needs to be adjusted.
Is the value of the stock important?
Yes indeed. Not only to file a correct tax return, but also for potential buyers of the company. A stock value is shown on the balance. Based on many factors among which is the value of the stock the value of the company can be determined. If then the company is sold and it turns out the value of the stock is very much different, there will be issues.
Issues with a buyer of your company is not nice. Believe me, issues with the tax office is not nice either. The tax office is in the business of assuming the moment there are no underlying documents for the value of the stock. The assumption of the tax office always result in more tax to be paid. Countering the value of the tax office is not possible, as the tax office make their assumptions during the process of the tax return filings many years later.
Tax is exciting
We think tax is exciting and we can understand you find counting the stock not exciting at all. Still it needs to be done. Simply instructing your accountant what value of stock to be used without any underlying document is not sufficient. Soon December starts, plan some counting days if you have stock in your company.