Question

Required: Advise Sport Pty Ltd as to the trading stock implications for the tax year.

Sport Pty Ltd is a retailer that sells sporting shoes and clothes. The following information applies to the relevant tax year:

• Purchases of new sports shoes and clothes for sale: $120,000.
• Sales of sports shoes and clothes: $300,000.
• Closing stock value for end of year prior to the relevant tax year: $400,000.
• Trading stock values at end of relevant tax year:
  • sports shoes: cost of $100,000, replacement value $90,000, market selling value $200,000; and
  • sporting clothes (non-footwear): cost of $200,000, replacement value of $220,000, market selling value $300,000.

Answer 1

As per IAS-2''Inventory'', the closing stock is to be valued at '' Cost Or NRV'' which ever is lower.

NRV or Net ralisable value = Expected market selling value-cost to sell.

Note-Replacement cost is necessery for the Manufactures only. Not for the retailers..

Where for a manufactures the Cost of worki in progress is more that its Replacement cost , then the WIP is to be valued at Replacement cost.

Sport Pty Ltd being a retailer, will have to value the closing stock at lower of Cost and NRV.

	A	B	C	D=B-C	Lower if A &D
	cost	Expected market selling price	Cost to sell	NRV	Value of closing stock
sports shoes	$100,000	$200,000	$0	$200,000	$100,000
sporting clothes	$200,000	$300,000	$0	$300,000	$200,000
				Total	$300,000

Cost of goods Sold = Opening stock+Purchases-Closing stock =  $400,000+ $120,000-$300,000 = $220,000

Operating profit = sales - Cost of goods sold=$300,000-$220,000 =$80,000