Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

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

EB 17: Costs: manufactured or produced stock of low-turnover traders

You could also call this:

“How low-turnover traders should value their manufactured stock”

When you’re a low-turnover trader who makes or produces trading stock, and you choose to value your closing stock at cost, you need to include certain costs in that value. These costs are:

  1. The materials you use, both directly and indirectly
  2. The labour costs, both direct and indirect
  3. The cost of utilities
  4. The cost of fixing and looking after your factory equipment
  5. The cost of renting factory equipment
  6. The amount your factory equipment loses in value over time
  7. Any other costs of production that you include in your financial statements for the year

If you use a budgeted or standard cost method to work out your costs, and there’s a difference between what you thought the costs would be and what they actually were, you don’t have to split this difference between the stock you sold during the year and what you have left at the end.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514322.

Topics:
Money and consumer rights > Taxes
Previous

EB 16: Cost allocation: cost-flow method for low-turnover traders, or

“How low-turnover traders calculate their trading stock costs”

Next

EB 18: Costs: other stock of low-turnover traders, or

“How low-turnover traders calculate the cost of purchased closing stock”

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

EB 17Costs: manufactured or produced stock of low-turnover traders

  1. This section applies when a low-turnover trader—

  2. has a business of manufacturing or producing trading stock; and
    1. determines the value of their closing stock at cost.

      1. In determining the value of their closing stock, the low-turnover trader must include the following costs of production:

      2. direct and indirect material costs:
        1. direct and indirect labour costs:
          1. utilities costs:
            1. costs of repairing and maintaining factory plant:
              1. costs of rent of factory plant:
                1. amounts of depreciation loss on factory plant:
                  1. costs additional to those described in paragraphs (a) to (f), if—
                    1. they are costs of production; and
                      1. the low-turnover trader includes them in the financial statements for the income year.

                      2. If the low-turnover trader allocates costs by a budgeted method or a standard cost method, and 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 low-turnover trader is not required to apportion the difference between the cost of trading stock sold or exchanged during the income year and the closing stock.

                      Compare
                      Notes
                      • Section EB 17(3): 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).