The ATO require businesses to undertake a stocktake to work out the value of trading stock at the end of the income year. This means you must work out the physical quantities of stock on hand and assign a value to each item of stock.
You can choose from three methods of valuing trading stock:
- Cost price – this includes all costs connected with bringing the stock into existence. The cost of finished goods, for example, must include freight, customs duties and delivery charges, as well as the purchase price. For manufactured goods and work in progress, the full cost includes the cost of labour and materials, plus an appropriate proportion of fixed and variable factory overheads, such as power, rent, rates and factory administration costs.
- Market selling value – the current value of the stock you sell in the normal course of business. Under this method, you cannot allow a reduced valuation where you are forced to sell the stock for some reason.
- Replacement value – the price of a substantially similar replacement item you purchase in your normal buying market on the last day of the income year.
You can change the method you use to work out the value of trading stock each year and can also use different methods for different items of stock. However, the value of stock at the beginning of each income year must be the same as the value of the stock at the end of the previous income year.
- Print an Inventory Reconciliation as at today’s date.
- What you are looking for is that the only items that you have on hand actually appear on that report. This is your chance to scan the list and make any obvious adjustments prior to actually performing a stocktake on June 30.
- If you are using the inventory module in an accounting program, print out the report and physically tick off items on hand. If items are no longer on hand or you have more than the report states, make the necessary stock adjustments.
If you don’t use an accounting program to track your inventory, make up a stock sheet on paper or an excel spreadsheet and capture the following information:[table id=5 /]