THC Paint Pty Ltd is a company that sells paint and other painting supplies to the public. A stock take at 30 June 2020 revealed there were 200 cans of a particular paint still unsold. Some of these cans of paint cost $10 when they were originally ordered (at the start of the tax year) and a few most likely were in the most recent shipment that had been received and which had a cost price of $14 each (due to some extra customs costs that had to be paid). The current replacement cost is $12 a can and the cans have a current market value of $22. Of these values per can of paint, which is not able to be used for tax purposes?

Question

Quizplus · Accepted Answer

The cost of $14 is not able to be used for tax purposes because it is not the cost of the goods on hand at the end of the tax year. The cost of the goods on hand at the end of the tax year is the cost of the goods that were purchased during the tax year and that are still on hand at the end of the tax year. The cost of the goods that were purchased during the tax year and that are still on hand at the end of the tax year is the lower of the cost of the goods when they were purchased or the current replacement cost. In this case, the cost of the goods when they were purchased was $10 and the current replacement cost is $12. Therefore, the cost of the goods on hand at the end of the tax year is $10.

THC Paint Pty Ltd Is a Company That Sells Paint