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EB 7: Cost allocation: cost-flow method
or “How to choose and use a method for valuing your trading stock”
You could also call this:

“How to divide costs when using estimated or standard pricing for leftover items”

This law applies to you if you make or produce items to sell, decide how much your leftover items are worth based on their cost, and use specific methods to figure out those costs. It doesn’t apply if you’re a small business that follows a different rule.

When you work out your costs, you might use estimates or standard costs. If there’s a difference between what you thought the costs would be and what they actually were, you need to split this difference. You should divide it between the cost of the items you sold or traded during the year and the cost of the items you still have at the end of the year.

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Next up: EB 9: Discounted selling price

or “How to value closing stock using discounted selling price”
Next

Part E Timing and quantifying rules
Valuation of trading stock (including dealer’s livestock)

EB 8Cost allocation: budgeted method or standard cost method

  1. This section applies when a person—

  2. has a business of manufacturing or producing trading stock; and
    1. determines the value of their closing stock at cost; and
      1. allocates costs by—
        1. a budgeted method; or
          1. a standard cost method; and
          2. is not a low-turnover trader to whom section EB 17(3) applies.

            1. If any difference arises between the estimated costs of production included in the financial statements of the business for the income year and the actual costs of production, the person must apportion the difference between the cost of trading stock sold or exchanged during the income year and the closing stock.

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            Notes
            • Section EB 8(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on , by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).