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Income Tax Act 2007

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

EB 9: Discounted selling price

You could also call this:

“How to value closing stock using discounted selling price”

You can decide the value of your closing stock using its discounted selling price if that’s how you record it in your financial statements.

If you’re a shop owner, the discounted selling price for each type of goods is the total of their retail prices minus the normal profit you usually make on them. You need to work out this normal profit margin each year for each type of goods, following certain accounting rules and including all the costs mentioned in sections EB 6 to EB 8.

If you’re a small shop owner with sales of $1,000,000 or less, you can use a simpler method. You can discount all your closing stock by the average profit margin for all your stock valued this way that year.

The government can change the $1,000,000 limit by making a new law.

If you’re not a shop owner, you calculate the discounted selling price differently. It’s the total market value of the goods minus the normal profit you usually make on that type of goods. You need to work this out each year and include all the costs mentioned in sections EB 6 to EB 8.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514304.

Topics:
Money and consumer rights > Taxes
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“How to value closing stock using the replacement price method”

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

EB 9Discounted selling price

  1. A person may determine the value of their closing stock at its discounted selling price if they use discounted selling price for their trading stock in their financial statements.

  2. If the person is a retailer, the discounted selling price for each department or category of goods is the total of the retail selling prices of the goods minus the normal gross profit margin for the department or category of goods. This subsection is overridden by subsection (4).

  3. For the purposes of subsection (2), the person must—

  4. calculate the normal gross profit margin for the department or category of goods under NZIAS 2 or an equivalent standard issued in its place; and
    1. calculate the normal gross profit margin for each income year for each department or category of goods; and
      1. include all costs that sections EB 6 to EB 8 require to be included.

        1. A trader who is a retailer whose turnover is $1,000,000 or less may determine the discounted selling price of all closing stock valued under this method in an income year by discounting the total of the retail selling prices of the stock by the average gross profit margin for all closing stock valued under this method in the income year.

        2. The Governor-General may make an Order in Council increasing the sum specified in subsection (4).

        3. An Order in Council under subsection (5) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

        4. If the person is not a retailer, the discounted selling price for each category of goods is the total market selling value of the goods minus the normal gross profit margin for the category of goods.

        5. For the purposes of subsection (6), the person must—

        6. calculate the normal gross profit margin for each income year for each category of goods; and
          1. include all costs that sections EB 6 to EB 8 require to be included.

            Compare
            Notes
            • Section EB 9(3)(a): amended, on , by section 350(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
            • Section EB 9(5B) heading: inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
            • Section EB 9(5B): inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
            • Section EB 9 list of defined terms NZIAS 2: inserted, on , by section 350(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).