大三下合作课税法part g

1、PART GTrading StockThe basicsPurchases of trading stock or raw materials to be processed into trading stock are allowable deductions under the general deduction provision, ITAA97 s 8-1.Division 70 provides for the treatment of opening and closing balances of stock on hand, valuation rules and the tr

2、eatment of non-business disposals of stock. Trading stock includes livestock and provisions relating to primary production located in ITAA97 subdiv 385-E.TRADING STOCKWhere trading stock at the beginning of the financial year is greater than the end of the financial year, the business can claim a de

3、duction against assessable e.Where trading stock is greater at the end of the year to the beginning of the year, the business must include this is their assessable e.TRADING STOCKTrading stock for SBE taxpayersUnder the SBE taxpayers are not required to bring closing stock on hand to account where t

4、he difference between opening and closing stock was reasonably likely to be no more than $5000. TRADING STOCKDivision 70 ITAA 1977Definition (Div 70-A)Rules on Acquisition of Trading Stock (Div 70-B)Accounting for Trading Stock (Div. 70-C) e from Trading Stock (Div 70-D)TRADING STOCKSection 70-35Dif

5、ference in value of stock is assessable or deductibleAssessable if closing balance greater than opening balanceDeductible if closing balance less than opening balanceEND OF YEAR VALUES Gross sales . $21,000 Less: cost of goods sold: Opening stock . $8,000 Add: purchases .4,000 labour . 5,200 parts u

6、sed . 1,000 $18,200 Deduct: closing stock .10,000 8,200 Gross profit .$12,800 ACCOUNTING METHODDefinitionSection 70-10: Trading stock includes:a) anything produced, manufactured or acquired that is held for the purposes of manufacture, sale or exchange in the ordinary course of business; andb) lives

7、tockTrading StockTrading Stock is:goods held by a trader . . . for sale or exchange in the ordinary course of his trade Suttons Motors (Chullora) Wholesale Pty Ltd v FCT 85 ATC 4398Goods can be trading stock for one person whilst capital for another i.e. land, shares, cars.GENERAL PRINCIPLESIt can i

8、nclude debts, land, demonstration cars, scaffolding, spare parts for maintenanceGrowing crops eg timber or fruit are not trading stock until they are taken from the landShares can be trading stock if in the business of share tradingThe taxpayer does not need to own the goods to be trading stockSutto

9、ns Motors (Chullora) Wholesale Pty Ltd v FCT 85 ATC 4398Trading Stock principlesSection 70-15 states that a deduction for trading stock is available:If it is trading stock during the year then the cost is deductible,The amount is deductible in the first year that it is trading stockTrading Stock Pri

10、nciplesValue of closing stock, section 70-45Options are:Cost,Market selling valueReplacement priceCan value each article of stock differentlyValue of closing stock at end of e year es the opening value at beginning of following yearWhat are benefits of using different values of trading stock?Valuati

11、onCostMethods available are:FIFO,Average cost, standard cost and retail inventory methodIn manufacturing cost must include direct and indirect overheadsMarket valueThe value from a sale in the ordinary course of businessReplacement priceThe price at which the item can be replaced buying it in the ma

12、rket on the last day of the e yearValuationIn ordinary course of tradingNormal process i.e. gross sales minus cost of sales (provided arms length)Not in ordinary course of tradingSale of business, gift and in any circumstances not related to normal business practice then:Taxpayer assessed on the mar

13、ket value of the stock at date of disposal, section 70-90Disposal of trading stockSection 70-100 there is a disposal outside the ordinary course of business if it stops being trading stock of an entity (transferor) and immediately after change of ownership the transferor is not the sole owner and an entity that owned beforehand still has an interest in the itemExample:Joe runs an auto accessory busi