Purchase of complete inventory

[oceanlovin'ea]

Client purchased an inventory of 40,000 auto parts and books for one price, say $15,000. He has bins and shelves full of parts....a 30x30 garage full. He doesn't even know what all he has. He just had to open a bin and start looking at each part, try to figure out what it is and see if it will sell on Ebay. How does he determine the price of something he sells on Ebay?

Maybe half those parts are worthless and he will end up throwing them out. He might have some parts that turn out to be quite valuable. He needs to put a price on these things and I am at a loss to tell him how to do this.

I appreciate all help you can give me.

Linda, EA

[DaveO]

You could apply a percentage to each sale. Say if the goal was to sell at a 100% markup, consider 50% of the sales price of each item to be its cost and reduce the remaining inventory cost accordingly. At some point we may do a bulk sale of what is left and wire off the un-deducted basis at that point or he may end up with some inventory which he owns at no cost basis the sale of which would be pure gain.

We have a client that factors receivables and we discount them according to their aging based upon a good faith estimate of the collectability and prorate the purchase price accordingly. At times certain accounts become truly worthless based on bankruptcy or a loss in court at which point those are written off. Some accounts are settled for full price and that results in more profit than expected since the inventory cost is greatly exceeded by the sale. This has worked well for them for several years.

[oceanlovin'ea]

moving back up

Just wanted to move this back up so maybe I'll get some other comments. Thanks DaveO

Linda, EA

[Burke]

How does he determine the price of something he sells on Ebay? Maybe half those parts are worthless and he will end up throwing them out. He might have some parts that turn out to be quite valuable. He needs to put a price on these things and I am at a loss to tell him how to do this.
Linda, EA

I had a client who did this, but he purchased a business in which he had some expertise and continued to operate it. He had to keep detailed records of the parts inventory, and also separate from the new parts he purchased. This guy sounds like someone who bought one of those storage lockers and doesn't have a clue what anything is worth. That is not your problem. He needs to do some research to determine what things are worth and how much to ask for on Ebay. I agree with Dave0's solution for the valuation for inventory purposes.
As he sells each piece, reduce total inventory of $15K by 50% of the retail amount of each item until you are at zero (assuming he does not buy more.) After that, it's 100% gain. If he has recaptured all his basis, then the "worthless stuff" has no basis and he gets no deduction.

[oceanlovin'ea]

I'm sorry. I should have given a better explanation. He bought out an inventory of auto parts. He knows a lot about cars and parts. It is what he has dealt in all his life. He already had a lot of parts. He knows what a lot of the parts are and what they are for. There are bins and bins of parts. He hasn't gone through them all yet. As he opens a bin, he will investigate the parts. He will sell them on eBay. There will definitely be a lot of worthless stuff that he will just pitch. But the hope is that some of it is worth something. Included in what he bought was a large library of parts books. So he can use the books to look up parts too. He said the books are probably worth more than the parts. When he has sold all the parts he can sell, he will probably sell the books.

So you are suggesting that he count a cost of 50% of the sales price. He sells for $50, cost is $25.

That sounds reasonable. When the whole amount has been used, then it will be pure profit. He can handle that.

Thanks

Linda, EA