Trading Stock Flashcards
Gross income para jA deemed stock
Does not apply to purchased assets.
Vat will be different and when change of use occurs there may be a deemed output.
Amount received from disposal of capital asset deemed gross income if has been manufactured and is similar to other assets tax payer manufactures for trading stock.
If trading stock subsequently becomes a capital asset, it will remain trading stock and proceeds will be included in income.
Where this para applies no s22(8) adjustment is made on change of use. Thus no recoupments and no allowances.
S22 (1) closing stock
If stock acquired and disposed in same year, s22 will not apply.
Closing stock held and not disposed of at year end added back.
Cost price less amount diminished in value.(may not write of if financial instruments). If 24J9 election made by a dealer in financial instruments, closing stock must be valued at mv.
Spare parts are included in trading stock at year end, purchase gets an 11d deduction.
The fact that wip is not sale able does not exclude it from trading stock. Must have taken decision to sell before can be included in trading stock.
S22(2) opening stock
Deduct opening stock from income.
All stock included in closing stock at end of previous year. Thus same amount. Unless shares acquired in anticipation of liquidation then opening stock adjusted for dividend stripping.
Include trading stock not included in trading stock at end of previous year but held at start. This would be from change of use. Mv added to opening stock.
S22(3) cost of inventory
Includes
Cost, getting it in current location and condition, exclude exchange difference, include s8(5) lease recoupments, mv at date change intention.
If capital asset acquired and converted in current year, cost deemed to be cost of inventory and not mv.
S22(4) stock acquired for no consideration
Cost deemed mv. If received in current year, cannot include in opening stock as has to be held at start of year.
Thus included in closing stock at mv.
Usually by donation or dividend in specie.
SARS allows a deduction of mv of stock (Ernst bester trust).
Caps issue of shares will have a nil value.
S22(8) private and domestic consumption and dividends
Private and domestic consumption
Deemed recouped cost or written down amount of stock added to income.
Other non trade disposal
Donations, otherwise than in ordinary course of trade, dividend in specie, cease to be held as trading stock, given to employee for services unless in ordinary course of trade. Deemed recouped at mv less amount received as consideration. Wear and tear will be allowed if becomes business asset at mv and will be its base cost.
If stock donated to pbo, amount included in opening stock is recouped.
S23F acquisition or disposal of trading stock
Cannot claim 11a if stock not disposed of in year or included in closing stock. Cost carried forward until disposal or inclusion in closing stock or destroyed or cannot be held or disposed.
If full consideration for disposal not accrue during year, expenditure to extent exceeds amount received must be disregarded. May be deducted when receive rest.
If tax payer sells a right in his trading stock and right held by tax payer not included in closing stock at year end, recoup as much of the expenditure as relates to remaining right.
Definition trading stock
Anytime made or acquired for purposes of sale or which will be incorporated in another asset and sold.
Include consumable stores and spare parts.
Anything from which proceeds will be included in income except capital assets and forex options and fec.
Purchase of trading stock will be allowed as a deduction under 11a if expense incurred in production of income not of a capital nature.
