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Trading stock


What is trading stock?

Trading stock is property a person who owns or carries on a business has for the purpose of selling or exchanging in the ordinary course of business (EB2).

Trading stock does not include land and depreciable properties.


How to calculate trading stock?

Trading stock must be valued in order to calculate the assessable income for tax purposes. The closing stock of the current income year is the opening stock of the subsequent year.  For example:



Less Cost of goods sold

Opening stock




Less closing stock


Cost of goods sold


Gross profit



How to value trading stock?



Valuation options

Trading stock is an excepted financial arrangement



Taxpayer’s annual turnover does not exceed $1.3 million and the value of closing stock is reasonably estimated to be less than $10,000


1)      Value of opening stock

2)      A standard valuation method

3)      A low-turnover valuation method

Low-turnover trader (Turnover does not exceed $3 million)

EB13 - EB22

1)      A standard valuation method

2)      A low-turnover valuation method

High-turnover trader (Turnover exceeds $3 million)

EB6 – EB 12

Standard valuation method


1. Standard Valuation Methods (EB4(1))

1)      Cost: Any taxpayer can value their trading stock at the end of an income year at cost. They can use any reasonable methods as long as the figure representing the reality cost.

According to NZ IAS-2, the cost of inventories includes all costs incurred in bringing the inventories to their present location and condition. They include import duties and other purchase taxes (do not include GST because it will be recovered subsequently); transport and handing costs (should be clearly related to inventories, otherwise it is a consumable aid); any other directly attributable costs of acquisition of finished goods, materials and services. Moreover, deductions and deferred discounts decrease the cost of inventories when received. 

2)      Replacement price (If used in the taxpayer’s financial statements) (EB10): Replacement price it the last available market value for acquiring the equivalent trading stock on the income year.

3)     Discounted selling price (If used in the taxpayer’s financial statements) (EB9): Discounted selling price is the retail selling price minus the normal gross profit margin.  ‘Normal gross profit margin’ must be calculated annually for each department or category of goods.

4)     Market selling value (If lower than cost and the taxpayer has reasonable evidence to substantiate it):  Market selling value is the amount expected to be received in the ordinary course of business from the sale of the trading stock, less: the estimated costs of completion and the expected cost of selling the trading stock.

2. Opening stock valuation method

If a taxpayer’s annual turnover does not exceed $1.3 million and the value of closing stock is reasonably estimated to be less than $10,000, he can use the value of opening stock as his closing stock (EB23).

3. Low-turnover Valuation Method

A low-turnover trader is a person whose business turnover does not exceed $3 million annually.

They can use the standard valuation methods, but in slightly different ways.

For cost method, they must include: Direct and indirect material costs; direct and indirect labour costs; utilities costs; costs of repairing and maintaining factory plant; cost of rent of factory plant; and depreciation of the factory plant.

For market selling value method: they may value their stock using market selling value whether that value is higher or lower than cost. They have to be consistent in their use of market selling value (EB11(2)-(4), EB 21).

Book Meeting

Schedule Appointment

New Zealand Tax Accountant