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Chapter 3: Trading stock and similar assets

Current arrangements

Taxpayers currently have three options for valuing each item of trading stock on hand at year end: cost, market selling value or replacement price. This allows them flexibility to adjust timing of income for tax purposes.

Some assets, similar to trading stock, are not required to be valued at year end even though cost is deductible at time incurred.

A strategy for reform

To develop a treatment for trading stock that would result in consistent valuation.

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Key policy issues How should trading stock be valued? What should be the treatment of assets with trading stock characteristics?
Option 1
Use the accounting approach where inventories are valued at the lower of cost or net realisable value.
Option 2
All stock to be valued at net realisable value.
Option 3
Allow taxpayers to select permanently one of the current options for all stock.
Possible moves to a more consistent treatment are discussed.