Inventory accounting in Uzbekistan

Inventory is recognised when an organisation expects future economic benefits, can measure cost reliably and has obtained title. It is initially recorded at cost, compared with net realisable value at the reporting date and expensed under the selected cost formula when disposed of. The policy must be documented and each transaction supported by primary documents.

In short:

• Inventory includes materials, work in progress, finished goods and merchandise, as well as other tangible assets used in operations or held for sale.
• Initial cost includes the supplier price and directly attributable acquisition costs; bank fees and borrowing interest are generally excluded.
• Specific identification, AVECO or FIFO may be used; one method is applied consistently to the same group throughout the reporting year.
• Inventory must be counted at least annually and written down to net realisable value when necessary.
• The key practical step is to document units of account, the inventory system, valuation methods and the limit for tools and supplies in the accounting policy.

Updated: 04 September 2026

What inventory means in accounting

NAS 4 governs accounting and financial-statement presentation for inventory owned by legal entities; financial instruments are outside its scope. This follows from the standard’s scope (clause 1 of NAS 4).

Inventory means tangible assets held for sale, used to manufacture products, perform work or provide services, or consumed for administrative and social or cultural functions. This is the substance of the inventory definition (clause 3 of NAS 4).

The main categories (clause 4 of NAS 4) include:

• raw, principal and auxiliary materials, purchased semi-finished products and components;
• fuel, containers and packaging materials, spare parts, tools and household supplies;
• young animals and animals being fattened;
• work in progress, internally produced semi-finished products and finished goods;
• merchandise and certain non-current assets acquired for resale.

Tools and household supplies are treated as inventory when their useful life does not exceed one year or their unit value does not exceed 50 BRV regardless of useful life. Management may set a lower monetary limit in the accounting policy. The test appears in the tools rule (clause 5 of NAS 4).

Threshold example. The maximum statutory limit at the current BRV is 22.000.000 UZS. An item costing less than that limit may be accounted for as supplies even if it will be used for longer than one year; where the entity’s accounting policy sets a lower limit, its own limit applies.

Some items remain supplies regardless of cost and useful life: special tools and devices, protective clothing and footwear, bedding, stationery, kitchen equipment, temporary non-title structures, replaceable equipment used for less than one year and fishing gear. The special list (clause 6 of NAS 4) is exhaustive for this rule.

When inventory is recognised

An organisation recognises inventory as an asset when three conditions are met together: future economic benefits are probable, cost can be measured reliably and title has passed to the organisation. These recognition conditions (clause 8 of NAS 4) mean that physical presence in the warehouse is not sufficient by itself.

The supply or sale contract determines when title, risks and rewards pass under the contract rule (clause 9 of NAS 4). Goods in transit may therefore already belong to the buyer, while goods accepted for safekeeping may still belong to the counterparty. Third-party inventory held by the organisation is recorded off balance sheet at the contractual value under the off-balance rule (clause 10 of NAS 4).

The organisation selects its unit of account: it may use an item code, a batch or a homogeneous group. The selection must provide substantiated quantity and value information for stock on hand and movements. This is required by the unit-of-account rule (clause 7 of NAS 4).

How to determine initial inventory cost

For a purchase, cost includes the supplier price and expenditure connected with acquisition. The baseline is in the cost composition rule (NAS 4). At the balance-sheet date inventory is carried at the lower of cost and net realisable value under the measurement rule (NAS 4).

Acquisition expenditure is measured from the primary documents that confirm it. This follows from the document requirement (NAS 4). An expense that cannot be connected to the acquisition should not be allocated mechanically to inventory cost.

For deferred or instalment payments, inventory is recorded at the price that would apply without financing. The difference between that price and total payments is recognised as finance expense over the payment term under the instalment rule (NAS 4).

Freight and procurement costs may be included directly in a batch or accumulated through a procurement account and allocated. The average percentage is the opening balance of those costs plus current-period costs, divided by opening inventory plus period receipts, as set out in the allocation formula (NAS 4).

Example. Let opening freight and procurement costs be A, period costs B, opening inventory C and period receipts D. The average percentage is (A + B) / (C + D). Multiply the value of inventory issued by that percentage to determine the related freight and procurement costs. A calculation note should document the result.

How to account for production and special receipts

The cost of produced inventory includes direct and indirect material costs, labour and other direct and indirect production expenditure under the production-cost rule (NAS 4). The same structure, including production overheads, is confirmed by the Cost Regulation (Cabinet of Ministers Resolution 54).

Selling, administrative, other operating and finance expenses, as well as extraordinary losses, are excluded from production cost under the exclusion list (NAS 4). Simple, standard, job-order and process costing are available; retail entities may use the retail inventory method. They appear in the costing methods (NAS 4).

Special receipts are measured as follows:

• inventory received free of charge and materials recovered from asset disposal are measured at current value on the recognition date, with related costs added, under the free-receipt rule (NAS 4);
• an exchange for similar inventory is measured at the carrying amount of the asset transferred, while an exchange for dissimilar inventory uses its current value under the exchange rule (NAS 4);
• a surplus found during a stocktake is measured at current value on the date it is identified under the surplus rule (NAS 4).

When inventory must be written down

At each reporting date, cost is compared with net realisable value for each item or homogeneous inventory group, and the lower amount is used. The comparison is prescribed by the NRV rule (NAS 4).

Indicators of a write-down include damage or obsolescence, a fall in the expected selling price, and an increase in completion or selling costs. They are listed in the impairment indicators (NAS 4). The decrease is recognised as a period expense under the write-down rule (NAS 4).

If net realisable value later rises, the previous write-down is reversed, but the new carrying amount may not exceed the lower of original cost and the new net realisable value. This ceiling is imposed by the reversal rule (NAS 4).

In practice, the closing review should collect evidence about selling prices, completion and selling expenditure, expiry dates, damage and slow-moving lines. Keep the calculation and the grounds for judgement with the stocktake and pricing records.

How to expense inventory using FIFO or AVECO

Inventory is derecognised on sale, free transfer, exchange, contribution to charter capital, transfer under a finance lease, shortage or loss, disposal because it is unusable, obsolete or expired, and in other prescribed cases. The grounds are consolidated in the disposal list (NAS 4).

The cost of outgoing inventory is recognised as an expense when the related income is recognised under the expense-timing rule (NAS 4). The financial result on disposal equals disposal income minus carrying amount and related indirect taxes under the result formula (NAS 4).

Example. Let income be R, carrying amount S and related indirect taxes T. The result is R − S − T: a positive amount is profit and a negative amount is loss. The calculation note should identify the primary document supporting each variable.

Three cost formulas (NAS 4) are permitted:

Under AVECO, average cost is the total cost of homogeneous units, including opening inventory and receipts, divided by their total quantity. It may be calculated periodically or after each delivery, as provided by the AVECO formula (NAS 4).

Example. If opening inventory comprises quantity Q₀ at unit cost C₀ and a new batch comprises Q₁ at unit cost C₁, average unit cost is (Q₀ × C₀ + Q₁ × C₁) / (Q₀ + Q₁). The cost of an issue is that average unit cost multiplied by the quantity issued.

One method is applied consistently to each inventory group throughout the reporting year. The choice is documented in the accounting policy under the consistency requirement (NAS 4).

Which documents support inventory accounting

Every receipt, internal movement and disposal must be supported by a primary document prepared during or immediately after the transaction. It must state the entity and document names, date and place, transaction substance, physical and monetary measurement, and the positions and signatures or identifiers of responsible persons. These details are required by the document article (Article 14 of the Law on Accounting).

A purchase file may include the contract, invoice, delivery note, freight and customs papers, service acceptance certificates and payment documents; the exact set depends on the transaction. The electronic document used on sale is discussed separately in the invoices guide.

For collection of inventory by power of attorney, NAS 4 provides two forms and registration in a book or journal; an electronic power of attorney is signed digitally. This follows from the authorisation procedure (NAS 4). Goods must not be released under an incomplete, corrected, expired or revoked power of attorney, without the authorised person’s passport, or after the issuing entity has ceased operations. These restrictions appear in the release prohibition (NAS 4).

Primary documents, accounting registers and financial statements must be retained for at least five years after the reporting year under the retention period (Article 29 of the Law on Accounting).

Which accounts record inventory

Under the current chart of accounts, materials are recorded in accounts 1010–1090, procurement in 1510, variances in 1610, production in 2010, 2110, 2310, 2510 and 2710, finished goods in 2810–2830, and merchandise in 2910–2990. The structure is in the chart of accounts (NAS 21).

Typical entries depend on the inventory type and transaction:

An organisation chooses a perpetual or periodic inventory system to suit its activities under the system-choice rule (NAS 4). A perpetual system updates stock and cost of disposals after every movement. In a periodic system, cost of disposals is opening inventory plus receipts minus closing inventory established by the stocktake. The periodic formula (NAS 4) prescribes this calculation.

Example. Let opening inventory be O, receipts P and stocktake-confirmed closing inventory K. Cost of disposals is O + P − K. The result should reconcile with purchasing-account turnover and the period’s supporting documents.

When tools and household supplies are put into use, their value is fully charged to production or period expenses and simultaneously recorded in off-balance account 014 until disposal under an act. Analytical records are maintained by individual user and workshop store under the account 014 procedure (NAS 21).

How to perform an inventory stocktake

Inventory must be counted at least once a year to confirm physical quantities, net realisable value and safekeeping. This frequency is set by the stocktake rule (NAS 4). Before counting, close warehouse movements or clearly segregate transactions during the count, obtain acknowledgements from responsible custodians and reconcile the sheets to analytical records.

Shortages are written off at carrying amount and recorded in a loss account until the responsible person is identified. If no responsible person is found, the amount goes to financial results; surpluses are recognised as other operating income. The difference rules (NAS 4) govern this treatment.

How inventory accounting affects tax

For corporate income tax, economically justified and documented costs of purchasing or producing inventory are deducted through the cost of that inventory. This follows from the expense rule (Article 305 of the Tax Code).

An accounting write-down does not automatically create a tax deduction. Property write-downs and losses from discarding inventory because it is unusable, expired or obsolete are non-deductible; extraordinary circumstances are an exception for disposal losses. These limitations are in the non-deductible list (Article 317 of the Tax Code). Accounting and tax carrying amounts should therefore be reconciled separately.

Three VAT situations require attention:

• transfer of title to goods for consideration and certain free transfers constitute taxable turnover under the turnover definition (Article 239 of the Tax Code);
• previously credited VAT is adjusted when inventory is damaged or lost above natural-loss norms, except in extraordinary circumstances, under the adjustment rule (Article 269 of the Tax Code);
• an invoice, generally electronic, is issued on sale; a cash receipt or another document in the prescribed form is used in specified cases under the invoice rule (Article 47 of the Tax Code).

If the inventory valuation method changes for tax accounting, aggregate income or expense is adjusted by the difference and the new method applies from the start of the tax period. This is the transition rule (Article 321 of the Tax Code).

What to check before closing the period

Use one closing control route:

• reconcile passage of title to contracts and identify third-party inventory off balance sheet;
• check initial cost against primary documents and account separately for excluded expenditure;
• apply the documented cost formula and selected inventory system consistently;
• reconcile warehouse analytics to control accounts and stocktake results;
• assess write-down indicators, tax differences and VAT adjustments for losses;
• ensure each difference, disposal and reversal has a calculation and supporting basis.

Incorrect or unsubstantiated accounting or reporting, and failure to conduct a stocktake, expose officials to a fine of 1.320.000 to 3.080.000 UZS; a repeated violation within a year carries 3.080.000 to 4.400.000 UZS. The amounts are set by the administrative rule (Article 175-1 of the Code of Administrative Liability).

The central conclusion is that each group’s closing balance must be supported at the same time by physical stock, primary documents, the selected valuation method and correct accounting and tax treatment.

Frequently asked questions

What does inventory mean in accounting?

It means tangible assets held for sale, production, work, services, or administrative and social or cultural needs. The category includes materials, work in progress, finished goods and merchandise.

How does inventory differ from property, plant and equipment?

Inventory is held for sale, consumption or processing, rather than long-term use as a separate non-current asset. Tools and household supplies have a separate one-year and value test, while certain listed items are treated as supplies regardless of cost and useful life.

Which inventory cost formula should be selected?

Specific identification suits individually distinguishable or project inventory; AVECO or FIFO suits homogeneous inventory. The method should reflect the nature of the inventory, be documented in the accounting policy and be applied consistently to the group throughout the reporting year.

When must inventory be written down?

When net realisable value is below cost at the reporting date. The review is especially important for damaged, obsolete, expired and slow-moving items, and when selling prices fall or completion and selling costs rise.

How often must inventory be counted?

At least once a year. Additional counts are prudent when a custodian changes, theft or damage occurs, an extraordinary event happens, the entity is reorganised or other circumstances require physical balances to be confirmed.