1. © National Core Accounting Publications
Chapter 8
Trading Stock
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2. © National Core Accounting Publications
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.”
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3. © National Core Accounting Publications
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.
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4. © National Core Accounting Publications
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
Replacement Value
Cost of identical replacement stock at the end of the income year
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5. © National Core Accounting Publications
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.
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6. Composition of Trading Stock
Consumables
Materials and stores used and consumed in making trading stock are not trading stock.
Spare parts
Spare parts held for repair and maintenance purposes are also not trading stock.
Both are normally deductible under s.8-1(1).
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7. 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.
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8. 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).
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9. Standard Values Standard values for the 2013* income year are:
Type of Business
Amount (excluding GST) 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
Restaurant/café (unlicensed)
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.
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