9.3 27%20Trading%20Stock%202009

9.3 27%20Trading%20Stock%202009 - ACIS 254 14 MAY 2009...

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ACIS 254 14 MAY 2009 LECTURE 27: TRADING STOCK TRADING STOCK 1 Introduction 1 Developments and Reforms 1 Trading stock defined. ................................................................................................................... 3 Valuation of Trading Stock from 1998/99 .................................................................................. 3 Key features .................................................................................................................. 4 Standard Valuation Methods ........................................................................................................ 4 Cost 4 Replacement price and discounted selling price ........................................................... 4 Requirement for consistency ......................................................................................... 4 Market Selling Value .................................................................................................... 5 The Low-Turnover Trader .......................................................................................................... 5 Consumable Aids .......................................................................................................................... 5 Introduction .................................................................................................................... 6 Spare Parts ................................................................................................................... 6 TRADING STOCK Reading: Trading Stock – NZT Chapter 10 [MTG Ch. 9, 9-010 to 145 and Ch. 10-232]. Introduction [NZT 10.1.1, 10.1.2 [MTG para 9-010] For any business, especially manufacturers, distributors or retailers, methods chosen to record and value trading stock (inventory) on hand at year end have a major impact on bottom line profit. Before the 1998/99 income year , the rules governing trading stock were a combination of statute law, case law and Inland Revenue Department practice. This could lead to conflict between the position taken by the taxpayer and that adopted by the Department. Tax is calculated on the net income figure. By minimising the value of trading stock on hand at year-end, the deduction for cost of goods sold is maximised and the resulting tax liability reduced. These rules enabled taxpayers to value their end of year trading stock for tax purposes at cost price, market selling value or replacement price. This freedom to choose a value for trading stock gave taxpayers considerable scope for spreading or deferring their taxable income between income years in order to defer or minimise their tax liability. Developments and Reforms In April 1997, the Government released a discussion document outlining proposals for the reform of the rules for the valuation of trading stock for tax purposes. The tax treatment of trading stock (or inventory) affects all businesses deriving income from manufacturing, producing, or trading in
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This note was uploaded on 12/23/2009 for the course BCOM ACIS 254 taught by Professor Alistairhodson during the Spring '09 term at Canterbury.

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9.3 27%20Trading%20Stock%202009 - ACIS 254 14 MAY 2009...

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