One of the acceptable methods to value stock is at the lower of cost and net realisable value (NRV). NRV is broadly defined as the estimated selling price of an asset less any disposal costs.
HMRC provides the following guidance in their Business Income Manual.
The realisable value is the expected sale price of the relevant stock in the condition in which it is expected to be sold in the trader’s normal selling market. From that value are deducted the estimated further costs which will have to be incurred to get the stock into its normal sale condition to arrive at the net realisable value.
The guidance continues that the net realisable value may be less than cost because of deterioration, obsolescence, or changes in demand. However, at the reporting date there may be a reasonable expectation that the proceeds of sale of some stock in future reporting periods will not produce enough income to cover its cost. If so, a loss on such stock should be recognised in the reporting period under review by writing off the irrecoverable costs incurred.
