| Trading Stock for Retailers and Wholesalers ? Signification Tax Change |
| A recent practice statement issued by the Australian Taxation Office indicates that from the last tax year, full absorption costing is necessary for retail and wholesale industries. |
The Australian Taxation Office practice statement instructs its officers on how to value trading stock on hand in retail and wholesale industries. Full absorption costing is necessary, at year end, but not at year beginning (although there is a precedent for this approach).
Absorption costing means that costs associated with purchasing, distributing, warehousing, storing and delivering products to the shelf are necessary components of the cost at year end. Warehousing costs for example, include light and power, rates, telephone, wages and even administration costs (associated with the warehouse).
There is likely to be serious debate and disagreement about this issue and a test case, which will argue whether the rules applying to a manufacturer should be the same as those applying to a wholesaler or a retailer.
The issues are firstly, whether the Australian Taxation Office principles are valid and secondly, the capacity of a small business to identify and calculate costs in accordance with this concept.
20th-May-2004 |
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