Inventory valuation feels like an accounting technicality — until you realize it simultaneously moves your reported profit, your tax base, and your group consolidation numbers, sometimes in different directions. For a foreign-owned Turkish entity holding meaningful stock, choosing and consistently applying a valuation method is a board-level decision disguised as a back-office setting. This guide explains the methods, the VUK-versus-IFRS interaction, and how an ERP keeps both views honest.

Note: Inventory accounting and tax treatment are situation-specific and legislation changes. Always confirm the applicable treatment with your CPA (SMMM) and group controller.

Why valuation method matters

The same physical stock can be carried at different values depending on the method. That difference flows into:

Cost of goods sold — and therefore gross margin
Ending inventory value — and therefore the balance sheet
The tax base — and therefore tax payable
Group consolidation — if the method or treatment differs from group policy

In a stable-price environment the differences are small. In an inflationary environment — which Türkiye has experienced — the differences become material fast.

The main methods

FIFO (First-In, First-Out)

Assumes the oldest stock is consumed first. In a rising-price environment, FIFO leaves newer (higher) costs in ending inventory and older (lower) costs in COGS — so reported profit tends to be higher, and so is the tax base.

Weighted average

Recalculates an average unit cost as stock moves. It smooths price swings. Ending inventory and COGS both sit between the FIFO and "newest cost" extremes. Many Turkish entities use a moving weighted average.

Standard cost (with variances)

A predetermined cost is used for transactions, with variances captured separately and reconciled. Common in manufacturing; the standard must be reviewed regularly or the variances grow large.

Note on LIFO: Last-In-First-Out is not permitted under IFRS. If your group reports under IFRS, LIFO is off the table for group purposes regardless of any local consideration.

VUK and IFRS interaction

VUK (local tax books): Turkish tax legislation governs which methods are acceptable for the statutory and tax books, and how consistently they must be applied. Method changes typically can't be made casually.

IFRS (group books): IAS 2 permits FIFO and weighted average (not LIFO), and requires the lower of cost and net realisable value (NRV) test.

For a foreign-owned entity, the practical goal is: pick methods that are acceptable for VUK and align with — or cleanly reconcile to — group IFRS policy. Where they differ, the ERP must derive both views from the same transactions, never re-keyed.

The NRV test (lower of cost and net realisable value)

Under IFRS, inventory cannot be carried above what you can actually realise from selling it (less costs to complete and sell). When NRV falls below cost — obsolescence, damage, price collapse, slow-moving stock — a write-down is required.

The ERP should support:

An obsolescence / slow-moving policy (e.g., aging buckets)
NRV comparison against carrying cost
Write-down entries with audit trail
Reversal handling if NRV recovers (IFRS allows reversal up to original cost; tax treatment differs)

Inflation accounting interaction

When Türkiye meets hyperinflation criteria under IFRS, IAS 29 restates non-monetary items — including inventory — using a price index. Turkish tax legislation has its own inflation-adjustment framework when activated. These are different mechanisms with different mechanics.

The ERP should be able to keep the VUK statutory inventory values intact while computing the IAS 29 restatement for group reporting — with the specifics run past your CPA.

Costing in a manufacturing context

For manufacturers, inventory value isn't just purchase price — it's purchase price plus the conversion costs that turn raw material into finished goods:

Direct material
Direct labor
Allocated production overhead

Each inventory layer (raw material, WIP, finished goods) carries the appropriate cost components. The valuation method applies on top of a correct cost build-up — get the build-up wrong and the method choice is moot.

The 6 common failures

1. Method chosen once, never documented No one can say why the firm uses what it uses; auditors and inspectors both ask.

2. Method drifts in practice The system says weighted average; manual adjustments behave like something else.

3. No NRV / obsolescence policy Slow-moving and obsolete stock carried at full cost; the balance sheet is overstated.

4. VUK and IFRS reconciliation done in a spreadsheet Manual, error-prone, breaks when the person who maintains it leaves.

5. Conversion costs mis-built Overhead under- or over-absorbed into inventory; margin and stock value both wrong.

6. Inflation restatement done inconsistently Applied ad hoc rather than systematically, generating audit findings.

ERP capability checklist

Birasyo's inventory valuation approach

Birasyo ERP's inventory and costing module:

FIFO and moving weighted-average, configurable per item class
Standard costing with variance capture for manufacturing
Parallel VUK and IFRS valuation views from one transaction set
NRV test with obsolescence/slow-moving aging policy
Write-down and reversal handling, fully audited
IAS 29 restatement support (executed per your CPA's guidance)
Multi-layer costing (raw material, WIP, finished goods)
Conversion-cost build-up tied to BOM and routings
Method-change controls with documentation trail

If you hold meaningful inventory in a Turkish entity and want both your tax books and group numbers to stay consistent, book a session.

Sources

VUK (Vergi Usul Kanunu) — inventory valuation provisions
IFRS (IAS 2) — Inventories
IFRS (IAS 29) — Financial Reporting in Hyperinflationary Economies
Türkiye Public Oversight Authority — TFRS materials

Inventory Valuation Methods Under VUK and IFRS: A Guide for Foreign-Owned Turkish Entities