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Inventory Valuation: Impact of the Pandemic

by Wayne Bartlett

The spring is a crucial time of year for garden centres in the UK. It is the season in which sales tend to be higher than any other. The UK has a very active market in the supply of plants as there are many keen gardeners in the country.

However, the pandemic has hit the sector hard. Garden centres are now regarded as 'non-essential' and therefore are shut. The end result of this is potentially catastrophic for many garden centres as their stock has a limited shelf life. If plants are not sold and put in gardens during the course of the spring months then the likelihood is that a large proportion of them will have to be thrown away.

The bulk and volume of the supplies involved makes it very unlikely that online delivery services will be able to make any significant impact in closing the financial gap that arises as a result. This is extremely significant for many businesses. A sector commentator on the BBC Today programme of 30 March 2020 suggested that up to 90% of garden centre balance sheets are made up of inventory of plants, many of which may now have to be thrown out. This has very clear repercussions on the impairments which need to be recognised as a result of comparing net realizable value to cost and will hit many garden centres very hard.

The Horticultural Trades Association (HTA) has calculated that seasonal plants worth £200 million which have been grown in garden centres will now have to be destroyed. This is a direct charge to the bottom line of the companies involved and an impairment loss to be recorded in their Income Statements.

There are around 650 businesses in the UK producing ornamental crops, contributing £1.4 billion to the economy annually and employing more than 15,000 people directly and 30,000 indirectly. The total value of lost plant sales in the UK has been estimated by the HTA to be in the region of £687 million by the end of June 2020.

It is likely according to them that some businesses will fail because of this situation and the HTA is therefore calling on the UK government for direct financial support to the industry.

How is your business likely to be affected by the pandemic as far as any inventory is concerned? What insurance arrangements do you have in place to cover the disposal of short-life items and those which may have to be disposed of because they are no longer sellable?

In his new course Accounting for Coronavirus, Wayne Bartlett examines the likely impact of the crisis on all aspects of companies' financial reports.

Wayne Bartlett is an author for accountingcpd. To see his courses, click here.

  1. Andrea T
    Posted 10-May-2020 at
    very interesting to read this
    1
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