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Accounting · Trading Companies

Stock Records for a Deira Trading Company

Tall metal warehouse shelving stacked with plain cardboard cartons in a narrow aisle, a wheeled step ladder at the end, even overhead light.

Last reviewed by the Exiloz tax team against the UAE legislation in force on that date. Tax law moves — confirm any figure against tax.gov.ae before you act on it.

Closing stock is the number that decides the profit

For a Deira trading company, profit is sales minus the cost of what was sold. That cost depends on what is still on the shelf at year-end. Overstate closing stock and profit is overstated by the same amount, and so is Corporate Tax. Inventory accounting for Deira trading companies turns the year-end count into a figure the business can defend.

In Deira's wholesale trade, stock moves fast and records often lag behind. The fix is not complicated: a proper count, an honest valuation and a record of how the final number was reached. This guide covers the tax effect, valuation, what belongs in cost, the year-end count and goods held for others. It follows Ministerial Decision No. 114 of 2023.

How does closing stock affect Corporate Tax?

Very directly, because cost of sales is opening stock plus purchases minus closing stock. Every dirham of stock that does not really exist is a dirham of cost missing from profit. UAE Corporate Tax then charges 9% on taxable income above AED 375,000.

Take an illustrative Deira wholesaler whose system shows AED 1,450,000 of stock, but whose count finds AED 1,200,000. Old models costing AED 180,000 will now sell for only AED 60,000, so stock falls AED 370,000. Where taxable income stays above AED 375,000, tax falls by AED 33,300.

Quick Answer

Overstated closing stock inflates a UAE trading company's profit and its 9% Corporate Tax. An accurate year-end count and honest valuation keep the tax tied to stock that really exists.

How should Deira trading companies value their inventory?

At the lower of cost and net realisable value, under the accounting standards that Corporate Tax relies on. Ministerial Decision No. 114 of 2023 requires IFRS, or IFRS for SMEs where revenue does not exceed AED 50 million. Both standards apply that rule to inventory.

Net realisable value is what the goods will sell for, less the costs of selling them. Slow stock is where it bites, such as older phone models or last season's fashion. Review lines unsold for six months and write them down to realistic selling prices.

Quick Answer

UAE trading companies value their inventory at the lower of cost and net realisable value under IFRS or IFRS for SMEs. Slow-moving lines are written down to realistic selling prices.

What goes into the cost of stock?

It includes the purchase price, import duty, inbound freight and insurance, and handling needed to bring goods to their present location. Recoverable VAT is excluded, because it comes back through the VAT return. Selling costs, storage after arrival and general overheads are excluded from cost too.

Currency matters a lot in Deira, where much stock is bought in US dollars or yuan. Record each purchase at the exchange rate on the purchase date. Exchange differences on paying the supplier later belong in profit and loss, not in the stock value.

Quick Answer

The cost of stock in the UAE includes purchase price, import duty, freight and handling, but excludes recoverable VAT. Record foreign-currency purchases at the exchange rate on the purchase date.

How should the year-end stock count be run?

Count what is physically there, not what the system says should be there. Freeze stock movements during the count if possible, or record every movement that happens. Count by location and product code, with two people in each team.

Reconcile the count to the system line by line and investigate large gaps before posting them. Theft, damage, unrecorded sales and counting errors each tell a different story, and some point to sales that should have carried VAT. Keep signed count sheets, because auditors and the FTA may ask for them.

Quick Answer

A UAE trading company's year-end count should cover every storage location, use two-person teams and reconcile line by line. Keep signed count sheets as evidence for audits and FTA reviews.

Does stock held for others count as your inventory?

No, goods you do not own are excluded, even when they sit in your warehouse. Consignment goods from a supplier, or goods sold but not yet collected, belong to someone else. Your own goods held elsewhere, including in transit, still count.

Count by ownership rather than location, and keep a list of third-party stock at every count. VAT follows purchases and sales, so a write-down does not reverse input tax already recovered. Stock still held when a company deregisters for VAT can, however, create output tax in the final return.

Quick Answer

Consignment goods and customers' uncollected goods are not part of a UAE trader's inventory. Your own stock held elsewhere, including goods in transit, still counts at year-end wherever it sits.

Make the Stock Figure True

Exiloz reconciles your stock records to a physical count, values slow-moving lines and posts the year-end adjustments. Ask about stock accounting for Deira traders.

Frequently Asked Questions

How often should a Deira trader count stock?

At least at year-end, because the accounts and any audit rely on that count. Traders with high-value or fast-moving stock often add regular monthly or quarterly cycle counts as well.

Can a trader use a general percentage provision for slow stock?

The FTA has not issued guidance on general inventory provisions for Corporate Tax. Base write-downs on specific identified items and evidence of realisable value, not on a general round percentage.

Does a stock write-down change the VAT reclaimed?

Generally no, because input tax follows purchases and output tax follows supplies. A write-down in the accounts does not reverse input tax already recovered when those goods were first bought.

What causes most differences between book stock and the count?

Duplicate product codes, sales booked to a generic line and returns never booked back in all cause drift. Clean the product list yearly and control who can create new codes.

Should a shortfall found at the count be written off immediately?

Investigate the largest gaps line by line before posting any write-off to the accounts. Some shortfalls reveal unrecorded sales, which may have needed VAT and can change the tax position.

What records support the year-end stock figure?

Signed count sheets, the line-by-line reconciliation to the system, evidence of selling prices for written-down lines and the third-party stock list. Keep them all together with the year-end accounts file.

Which cost method can a UAE trader use for stock?

IAS 2 uses first-in, first-out or weighted average cost for interchangeable goods, and specific identification for items that are not. Apply the chosen formula consistently to similar stock every year.

Is recoverable VAT part of the cost of stock?

No, VAT that the company can recover comes back through its VAT return. Only irrecoverable VAT, for example where input tax is blocked, would form part of the stock cost.

What happens if stock has not been counted for years?

When a count finally happens, the adjustment can be very large and span several years. That raises the awkward question of exactly which past year's Corporate Tax return was wrong.

Can Exiloz manage stock accounting for a Deira trader?

Yes, Exiloz can plan the count, reconcile it to the system and post the year-end entries. It also reviews slow-moving lines and documents each write-down clearly for the year-end accounts.

Main Takeaways

Closing stock decides a Deira trader's cost of sales, profit and 9% Corporate Tax. Value inventory at the lower of cost and net realisable value under IFRS or IFRS for SMEs. Count physically at year-end, reconcile line by line and keep the signed count sheets. Exclude other people's goods, such as consignment stock, and investigate shortfalls before writing them off.

Count, Value and Record Before 31 December

Inventory is where a trading company's profit is most easily overstated without anyone noticing. A system figure rolled forward for years without a count can hide shrinkage, breakage and misposted sales. A proper count, an honest valuation and a written record bring the figure back to reality. The Corporate Tax return then rests on stock that actually exists on shelves.

Schedule the 31 December count now and assign two-person teams by location. Clean duplicate product codes, list slow-moving lines with current selling prices and separate third-party stock. Reconcile the count before posting adjustments, and check our IFRS and IFRS for SMEs comparison for the valuation rules. Exiloz can take the whole stock file from the count to the year-end entries.

Sources & References

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