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Income Tax Act 2007

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

EB 19: Discounted selling price for low-turnover traders

You could also call this:

“How low-turnover traders can calculate stock value using discounted selling prices”

If you’re a low-turnover trader, you can value your closing stock at its discounted selling price. This applies whether you prepare financial statements or not.

If you’re a retailer with a turnover of more than $1,000,000, you need to calculate the discounted selling price for each department or category of goods. You do this by subtracting the normal gross profit margin from the total retail selling prices.

To work out the normal gross profit margin, you need to follow some rules. You must use a specific accounting standard called NZIAS 2 or something similar. You need to do this calculation every year for each department or category. You also need to include all the costs mentioned in sections EB 16 to EB 18.

If you’re not a retailer, you calculate the discounted selling price differently. For each category of goods, you take the total market selling value and subtract the normal gross profit margin.

Again, you need to calculate the normal gross profit margin each year for each category. And you must include all the costs mentioned in sections EB 16 to EB 18.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514326.

Topics:
Money and consumer rights > Taxes
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EB 18: Costs: other stock of low-turnover traders, or

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

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EB 20: Replacement price for low-turnover traders, or

“How low-turnover traders can value their closing stock at replacement price”

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

EB 19Discounted selling price for low-turnover traders

  1. A low-turnover trader who prepares financial statements 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. A low-turnover trader who does not prepare financial statements may determine the value of their closing stock at its discounted selling price.

  3. If the low-turnover trader is a retailer whose turnover is more than $1,000,000, 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.

  4. For the purposes of subsection (3), the low-turnover trader must—

  5. 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 16 to EB 18 require to be included.

        1. If the low-turnover trader 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.

        2. For the purposes of subsection (5), the low-turnover trader must—

        3. calculate the normal gross profit margin for each income year for each category of goods; and
          1. include all costs that sections EB 16 to EB 18 require to be included.

            Compare
            Notes
            • Section EB 19(4)(a): amended, on , by section 352(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
            • Section EB 19 list of defined terms NZIAS 2: inserted, on , by section 352(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).