Chapter 8 Trading Stock National Core Accounting Publications

Chapter 8 Trading Stock © National Core Accounting Publications 1

Overview Definition of trading stock Trading stock is “anything produced, manufactured, acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of business, including livestock. ” © National Core Accounting Publications 2

Overview Taxation of trading stock Trading stock is required to be taken into account in determining assessable income. For tax purposes, trading stock is brought to account in the same way as in the normal accounting calculation of gross profit. © National Core Accounting Publications 3

Methods of Valuation Trading stock may be valued by its: Cost Price • Cost of purchase and costs of delivery and preparation Market Selling Value • Normally expected sales value © National Core Accounting Publications Replacement Value • Cost of identical replacement stock at the end of the income year 4

Cost Price Any of the following methods are acceptable as a basis for valuation under the Cost Price method: • Average cost • FIFO • Standard cost LIFO is not an acceptable valuation method. © National Core Accounting Publications 5

Composition of Trading Stock • Consumables Materials and stores used and consumed in making trading stock are not trading stock. • Spare parts held for repair and maintenance purposes are also not trading stock. Both are normally deductible under s. 8 -1(1). © National Core Accounting Publications 6

Drawings of Trading Stock Drawings of trading stock by the business owner for personal use, consumption or enjoyment form part of that taxpayer’s assessable income. The ATO prescribes standard values for goods taken from trading stock for private use for many businesses. © National Core Accounting Publications 7

Accounting for Trading Stock General trading stock rules The general trading stock rules apply where the value of trading stock changes by: • more than $5, 000; or, • $5, 000 or less but the taxpayer chooses to do a stocktake and account for the change in value. Using the general trading stock rules, the taxpayer must record the value of all trading stock on hand at both of the following: • beginning of the income year (generally 1 July). • end of the income year (generally 30 June). © National Core Accounting Publications 8

Standard Values Standard values for the 2013* income year are: Amount (excluding GST) Type of Business for each adult/child over 16 years Amount (excluding GST) for child 4 to 16 years $ $ Bakery 1, 310 655 Butcher 780 390 Caterer 3, 670 1, 835 Delicatessen 3, 390 1, 695 Fruiterer/Greengrocer 760 380 Restaurant/café (licensed) 4, 350 1, 695 Restaurant/café (unlicensed) 3, 390 1, 695 Takeaway food shop 3, 270 1, 6350 Mixed Business (e. g. milk bar/convenience store or general store) 4, 070 2, 035 * 2014 standard values yet to be released by the ATO. © National Core Accounting Publications 9