Valuation of inventories of inventories

With the end of a year with high inflation and with it the fiscal year, many companies have to carry out the valuation of their inventories of exchange goods for the closing of their balance sheets. If companies determine a tax valuation in excess of what the Income Tax Law provides, they could be paying for unrealized profits. The importance of the valuation lies in its direct impact on the calculation of the cost of goods sold. A lower valuation of the inventory leads to a higher cost for the year and, therefore, to a lower tax to be paid since the law establishes that the calculation of the cost must be carried out using the formula: Cost = (Initial Stock + Purchases – Final Stock ).

For the 2022 period, the differences between the valuations determined according to the accounting and tax regulations may vary substantially, attentive to the different criteria that arise from said regulations.

Taking into account the current situation of high monthly inflation, an old-fashioned issue that the valuation of the last purchase of raw materials, resale merchandise and materials becomes relevant. In this sense, the regulation establishes that the cost of the last purchase must be determined in cash conditions.

The current economic scenario means that purchase prices may include “implicit” interest in accordance with the payment conditions. Failure to segregate this implicit interest can lead to a significant overvaluation of inventory.

For example, the case of the price of a product with a payment term of ninety days, can be 20% higher than the cash price. If the price of what was invoiced is used as the value of the last purchase to perform the valuation, which already has a significant implicit interest charged for financing, the value of the inventory would be overvalued.

The main difficulty is that reliable documentation must be available to demonstrate that the suppliers’ cash sales prices differ from the prices included in the purchase invoices, in order to determine the value of implicit interest, contained in said prices and thus Value inventories at cash purchase value. Said matter must be contemplated for the purposes of a correct determination of the tax and thus avoid paying taxes for fictitious nominal gains. That is, pay more.

*Partner of the Tax and Legal department of KPMG Argentina.

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