Stock Valuation Methods
Udyot ERP (eByapari) uses weighted-average cost to value stock, in line with Nepal Accounting Standards NAS 2 (Inventories). Every time you record a purchase, the system recalculates the average cost per unit and uses that figure to post your Cost of Goods Sold (COGS) the moment you raise a sales invoice — giving you accurate gross profit on every transaction and a balance-sheet stock value that always reconciles with your Trial Balance.
How weighted-average cost works in Udyot ERP
The weighted-average method blends the cost of existing stock with the cost of each new purchase to arrive at a single running average rate. Udyot recalculates this rate automatically after every inbound stock movement.
Formula:
New average rate = (Current stock value + Purchase value) ÷ (Current qty + Purchase qty)
Example in NPR: You hold 100 widgets at NPR 90 each (stock value = NPR 9,000). You then purchase 50 more at NPR 95 each (purchase value = NPR 4,750). The new average rate becomes:
(9,000 + 4,750) ÷ (100 + 50) = NPR 13,750 ÷ 150 = NPR 91.67 per unit
All 150 units are now valued at NPR 91.67. The next time you sell, Udyot uses NPR 91.67 as the COGS rate — not the original NPR 90 and not the new NPR 95 in isolation.
What it affects: COGS, gross profit, and inventory value
The weighted-average rate flows through three key figures:
- Cost of Goods Sold (COGS) — each sales line posts a COGS entry at the weighted-average rate on the date of sale, reducing your Stock-in-Hand balance and increasing COGS on the Profit & Loss statement.
- Gross profit — because COGS is computed immediately, your P&L gross profit is always current, not deferred to a year-end stock-take.
- Inventory value on the balance sheet — the closing stock value shown in Inventory → Stock Summary and Inventory → Reports → Stock Valuation always equals the Stock-in-Hand balance on your Trial Balance (to within one rupee of rounding).
How returns are valued
When a customer returns goods (via a Rejection In or Credit Note), Udyot credits COGS and debits Stock-in-Hand at the original weighted-average cost at the time of sale, not the current average. This follows NAS 2 §38 and ensures the reversal is symmetric: the same cost that went out as COGS comes back in.
Similarly, when you return goods to a vendor (via a Rejection Out), the stock reduction is posted at the weighted-average cost at the time of the return.
Where to see the current stock value
- Go to Inventory → Stock Summary to see the closing qty and weighted-average rate for every item, along with the grand-total stock value.
- Click any item row to drill into the Stock Ledger — a chronological list of every movement, rate, and running balance for that item.
- Go to Inventory → Reports → Stock Valuation for a point-in-time snapshot: pick any date and the report shows qty × weighted-average rate for each item.
- Cross-check with Reports → Trial Balance → Current Assets → Stock-in-Hand: this balance should match the Stock Summary grand total exactly.
NAS 2 compliance note for Nepal
Nepal Accounting Standards NAS 2 requires businesses to disclose the cost formula they use and to value inventory at the lower of cost or net realisable value (NRV). Udyot addresses both requirements:
- The Stock Summary header displays a cost-formula disclosure — “Cost formula: Weighted Average (NAS 2 §25 disclosure)” — which you can include in your financial statement notes.
- If the selling price of any item falls below its weighted-average cost (for example, obsolete or damaged stock), you can run an NRV review under Inventory → Reports → NRV. Items flagged as below NRV can be written down with a single click: Udyot posts the adjustment journal (Dr Stock Adjustment / Cr Stock-in-Hand) automatically, in line with NAS 2 §28.
For IRD reporting purposes, the written-down value also affects your VAT-able asset base. Always review any NRV write-down with your CA or tax advisor before submission.
Opening stock and the first weighted average
When you set up a new fiscal year (Bikram Sambat, e.g. 2082 BS), enter opening stock quantities and rates in Inventory → Opening Stock. The rate you enter becomes the starting weighted average for each item, and all subsequent purchases blend into it using the formula above.
If an opening stock row is locked because purchases have already been recorded against it, use a Physical Stock voucher to correct the balance — the opening stock page shows an amber notice and disables those rows.
Landed costs and their effect on valuation
Freight, customs duty, and handling charges must be capitalised onto inventory cost under NAS 2 §11, not expensed directly. In Udyot ERP you can apply a landed cost to a purchase: the extra amount is proportionally allocated across purchase lines and the weighted-average rates update automatically.
Common questions
Can I switch the cost formula later?
Yes, but it is a year-boundary exercise, not a mid-year one. Switching requires a revaluation of all open stock and a reconciliation journal. NAS 2 §36 restricts formula changes to situations where the change produces more reliable information — consult your CA first.
Why does my Stock Summary value not match my Trial Balance?
This usually means Integrate Accounts with Inventory was off for at least one historical voucher. Confirm the toggle is on in Settings → Account Settings, then use Reports → Daybook to find the gap date and post a reconciliation journal.
The rate looks wrong after a customer return — why?
Returns restore stock at the original cost at the time of sale, not the current average (NAS 2 §38). If the difference is material, post a Stock Journal adjustment and record the variance in the Stock Adjustment ledger.