For the correct tax valuation, the rules of "good business practice" and a "consistent code of conduct" apply.

The questions that arise with this topic are:

1. When will there be stock?
2. What methods are there for valuing inventory?
3. Can a loss be taken before stock is sold.
4. Can inflation gains in stock be excluded from the fiscal result?

Stock

Our law does not define the concept of stock. According to the jurisprudence of the highest court in the Netherlands, from which our tax law comes, must be understood by stock: "the whole of things that are present for operation, processing or sale and thus as intended for the turnover of the company".

This concerns raw materials, auxiliary materials and semi-finished products that are intended to be sold or processed into end products and end products that are intended for sale.

Profit and profit taking from stock

Profits are calculated according to good business practice, taking into account a consistent course of action. The reality principle and the prudence principle are important here.

The profit in stock must be taken in accordance with good business practice at the time of realization; the moment of sale.

What if stock has been purchased and the market prices have subsequently risen above the fiscal book value? In this case, therefore, no profit needs to be taken as long as the stock has not been sold.

Contrary to the foregoing, a loss in stock may be recognized as soon as it is foreseeable, even if it has not yet been sold.

The timing of the profit and loss recognition also depends on the valuation method used.

Nominalistic inventory valuation

There are several methods of valuing inventory. A differentiate can be made between nominalistic and substantiality stock valuation.

In a nominalistic inventory valuation, profit is taken into account to the extent that the sales proceeds of the goods sold exceed the cost price of these goods. The stock is valued at relatively recent purchase prices. The consequence of this is that any inflation profit goes through the fiscal result. 

Nominalistic valuation methods are:

1. Valuation on cost price.
2. Valuation at cost price or lower market value.
3. Valuation according to the FIFO- system (First-In-First-Out). This method is especially interesting when (purchasing) market prices are falling, which is rarely occurs.
4. Valuation on the (purchase) market price is also permitted in practice. There is no assurance that this method is in accordance with good business practice. 

What should be understood by cost price? Cost price includes everything related to the

purchase or production. So also the

costs of transport and delivery. Financing costs, on the other hand, do not have to be capitalized.

These costs may be taken as costs in the period in which they arise. In the case of self-generated inventory, the constant part of the general costs does not have to be capitalized either.

Substantial inventory valuation

In a substantiality inventory valuation, profit is recognized to the extent that the proceeds from the sale of the goods sold can be used to buy back more goods. At an increases in prices, the entrepreneur makes more profit when selling the stock. But the entrepreneur also spends more money to replenish his stock. The entrepreneur here needs the inflation profit to replenish the stock.

In a substantiality inventory valuation, the inventory is valued at (relatively) old purchase prices. The inflation profit on the sold stock is then not (or only partially) added to the fiscal result.

The substantiality valuation methods are:

1. Valuation according to the LIFO- system (Last-In-First-Out).
2. The Iron Supply System.

Valuation of obsolete stock

The obsolete stock includes products that cannot or hardly be sold, because there is no (more) demand for them. According to established case law, obsolete stock can be valued at the expected sales price, less a mark-up for general costs and profit.

This must be in accordance with what is customary in the industry. In Suriname there is little or no industry information available. It will then depend on the persuasiveness of the entrepreneur to justify, strictly speaking, a write-down.

Important issues

• In stock valuation, a consistent course of action must be followed.
• Try to estimate in advance whether prices in the purchasing market will rise or fall. If prices are expected to fall, a nominal valuation can be opted for. Is the expectation that prices rise, then it can be opted for a substantiality valuation?
• Assess in case of obsolete stock or a write-down possible is, or a write-off in accordance with what is customary in the industry, if and to the extent possible.