Forum Archive Index - March 2002

["Rockbottom" <rockbottom@ihug.co.nz>]

Hi Derek

Quoting in part only from an old version of a tax guide:-

"Cost-flow methods for trading stock items

When purchases  are made at various prices during the year and some, but not
all, of the various trading stock remains on  hand at year-end, the question
is how to value the cost of that trading stock.

The new trading stock rules allow 2 methods for assigning such costs. They
are:

First in first out (FIFO) and
Weighted average cost method.

FIFO is a method which deems stock to be disposed of in the same order as it
is purchased. Closing stock is therefore valued at the cost of  the most
recent purchases.

Under WAC the cost is computed by averaging the amount at which stock is
brought forward at the beginning of  the income year with the cost of stock
acquired during the year. Consumption of stock during the year is deducted
at the average cost of stock so ascertained."

Taxpayers may elect to apply one or other but you are subject to consistency
requirements.

So either (a) or (b) are correct but certainly not (c) or (d).

Hope this helps

Discl.   Obviously the above is an opinion and must be read with a grain of
salt.


Rockbottom

----------------------------------------------------------------------------
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----- Original Message -----
From: "Derek" <dkw@paradise.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Saturday, March 23, 2002 8:01 AM
Subject: [sharechat] A taxing question


> Hi,
>
> Almost tax time again.
> Can someone help me with this one?
> If you were buying and selling shares in the
> same company and if you bought 1 share at 20 c
> then, later, 1 share at 30 c, then sold 1 share
> at 40c then how much profit would you have made for
> tax purposes ?
>
> a) 15c  using an average of the share cost
> b) 20c  saying that it was the first share that you bought you sold
> c) 10c  saying that it was the last share that you bought you sold
> d)     0c   what you have effectively done in total is to buy 1 share at
10 c
>
> Thanks in advance,
> Derek
>
>
>
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