Closing Stock Valuation on 31 March: A Practical Guide
Published: 10/9/2026
Category: Tax
Closing stock directly affects your profit and tax. How small businesses should count stock, choose a valuation method with their CA, handle damaged items and avoid common mistakes.
Your closing stock on 31 March is not just a number in the stock register; it directly changes your profit. Overvalue it and you pay tax on profit you have not earned; undervalue it and your accounts are wrong. Getting it right takes an accurate count and a consistent valuation method agreed with your CA.
Why closing stock affects profit
Cost of goods sold = Opening stock + Purchases − Closing stock
A higher closing stock means lower cost of goods sold and higher profit, and the other way round. That is why auditors and tax authorities look at it closely.
Step 1: count accurately
- Count on 31 March, or as close as possible, with movements adjusted
- Count by location, in pairs
- Separate damaged, expired and slow-moving items
Step 2: value consistently
Stock is generally valued at cost or net realisable value (what you can actually sell it for), whichever is lower. Common cost methods include FIFO and weighted average. Agree the method with your CA and use it consistently every year.
| Item situation | Usual treatment (confirm with your CA) |
|---|
| Normal saleable stock | At cost |
| Damaged or near-expiry | At what it can realistically be sold for, if lower than cost |
| Obsolete or unsellable | Written down or written off, with records |
| Goods in transit | Include if ownership has passed to you |
| Customer goods held by you | Exclude |
Step 3: document
Keep the count sheets, the valuation workings, and notes on write-downs. If questioned later, you can explain every number.
Common mistakes
- Valuing at selling price instead of cost
- Ignoring damaged or expired stock
- Changing methods year to year
- Counting stock that belongs to suppliers on consignment
Where BizFlow fits
BizFlow supports barcode-based year-end counts, records purchase costs by batch for FIFO or weighted average valuation and flags expired and slow-moving stock for your CA's review. See inventory management.
General information, not tax or accounting advice.
Frequently asked questions
Q: Is closing stock valued at cost or selling price?
A: Generally at cost, or net realisable value if that is lower. Confirm the method with your CA.
Q: How does closing stock affect income tax?
A: Higher closing stock lowers cost of goods sold and raises profit, so it directly affects taxable income.
Sources
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