Question

The taxpayer is a retail business and has performed a stock take and determined the following values in regards to certain stock that has seen demand reduce from customers:

• $160,000 - Net realisable value
• $200,000 - Stock on hand at cost (including obsolescent stock costing $20,000, although has no value)
• $340,000 - Market selling value

In regard to the above values, advise the closing stock the taxpayer should choose to minimise the taxable income of the business.

Select one:

a. $200,000

b. $340,000

c. $180,000

d. $160,000

Answer 1

Correct Answer : d. $ 160,000

Reason : Closing Stock is valued at lower of Net Realisable Value or cost ( cost in books). Net Realisable Value is determined as Market Selling Price less costs associated with sales.

In this question, Net Realisable Value is $160,000 and Cost is $200,000 - $ 20,000 = $180,000. Hence $160,000 is lower of the two.

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