Calculating inventory - a number of questions

[rwom1217]

When calculating the value of inventory...

Is it based on what I actually paid, or what the item is worth?

For example, let's say I get a smoking deal on a widget for resale.  For simplicity, let's say I started the year with zero inventory, so this is my only inventory item, and I have not sold it yet.  In January, I pay $5 for said widget.  Typical wholesale cost was $15, and resale value was $30.  In December of that same year, the wholesale cost has risen to $40, and resale value has risen to $90.  What would my beginning and end inventory values be?

Working from  the above example, if I were to buy another widget later in the year December and pay $40 for it (and still having both of them) what would my beginning and end values be?

If I pay tax when purchasing an item, do I include that in any of the values for beginning/end of year, costs of goods (such as Cost of Purchases, Purchases Withdrawn for Personal Use, etc.) etc.?

[MinhT1]

You should value inventory at cost (the price you actually paid for it).

If you paid sales tax when buying inventory, you should include sales tax in your cost.

[Anonymous_ · Accepted solution]

You can include taxes paid in your costs for the merchandise you hold for resale. However, if you are reselling goods, you would generally receive a sales tax exemption from your state taxing authority.

With respect to the cost you pay for merchandise, you would use your actual cost for purchases and then you could use the lower of cost or market value for your ending inventory.

Getting a "smoking deal" on items for resale will serve to increase your gross profit.

[Mike9241]

what inventory cost method have you selected

cost

lower of cost or market

lifo too complex for this forum  but based on the example you provided since nothing was sold the answer could be the same. see a pro 

some other method (?)

let's say using cost method

1/1/ 22 inventory apparent zero

purchases $5 (or + $40 for second 

not sold by year-end ending inventory $5 ($45 for both)

same for lower of cost or market since market > cost

tax is added to the purchase cost but as a reseller they should be a way to avoid having to pay this tax and this may involve contacting the supplier to find out what documents you would need to supply