Friday, 17 April 2015 04:53

Trading Stock and Valuation

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Trading stock includes anything business produce, manufacture, acquire or purchase for manufacturing, sale or exchange.

Trading stock does not include
• Standing or growing crops, timber or fruit. They are only countable when they are harvested.
• Stocks of spare parts held for repair and maintenance.
• DVD’s owner who lend DVD on rent.
• Consumables used in manufacturing trading stock such as cleaning agents or sandpaper.

Businesses who deal with inventory must calculate opening at the start of the year and closing stock at the end of the year. This will help us to decide how much is the assessable income.

Exception does exist for small business. If you are running a small business and your turnover is less than $2 million per year. In this case, you don’t need to count opening and closing stock if the difference is less than $5,000.

Business can use 3 methods to value the trading stock

• Cost price – Cost incurred by the business to bring the stock in use. The cost may include Freight, custom charges and delivery charges. For manufacturing industry we include all the full cost work in progress, labor and material charges plus any other fixed and variable cost.
• Market selling value - The current value of the stock you sell. In this mention you cannot undervalue the sale price of the stock of any other reason.
• Replacement value – The price of the similar item you purchases in normal buying market on the last day of the income year.

You may chose different method to value your closing stock; however your closing stock valuation method of the last year should match with opening stock of this year.

Contact us today, to find us how we can help you with your bookkeeping and end of year stock take.

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