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Record trading stock in ITR for new partnership

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Hello,

I’m preparing a tax return for a partnership which commenced this year. It has bought trading stock, but has not made any sales in 2018-19. The return instructions say to include the excess of closing stock over opening stock as an income add back in the income reconciliation adjustments. Where do I record the corresponding deduction under s8-1 for the purchases of stock held?

Does it go at the cost of sales label – at E item 5? I’m not sure if this is correct, because the expenses would be more accurately described as purchased stock on hand, as no sales have been made.

Thanks for your help.

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Hi @AnnaK,

 

Thanks for your question!

 

If you are following along with the partnership tax return instructions, you should see that for a new business the opening value of the trading stock should be $0. Any amount that represents opening stock of a business that started operations during the income year should be reported at E - Cost of sales at item 5.

 

The Cost of sales figure should be calculated as follows:

 

1. Begin with the value of all the trading stock on hand at the start of the financial year ($0 in the case of this new business)

2. Add purchases (e.g. $7,000)

3. Subtract the value of all of the trading stock on hand at the end of the financial year (e.g. $5,000)

4. Total equals cost of sales.

 

The cost of sales would be $2,000 in this example, as the amount spent on purchases is greater than the value of the trading stock on hand at the end of the financial year. The closing stock balance for this year then becomes the opening stock balance for the next year.

 

I hope this helps, but please let me know if you have any other questions.

 

Thanks,

 

Rachael B.

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Best answer

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Hi @AnnaK,

 

Thanks for your question!

 

If you are following along with the partnership tax return instructions, you should see that for a new business the opening value of the trading stock should be $0. Any amount that represents opening stock of a business that started operations during the income year should be reported at E - Cost of sales at item 5.

 

The Cost of sales figure should be calculated as follows:

 

1. Begin with the value of all the trading stock on hand at the start of the financial year ($0 in the case of this new business)

2. Add purchases (e.g. $7,000)

3. Subtract the value of all of the trading stock on hand at the end of the financial year (e.g. $5,000)

4. Total equals cost of sales.

 

The cost of sales would be $2,000 in this example, as the amount spent on purchases is greater than the value of the trading stock on hand at the end of the financial year. The closing stock balance for this year then becomes the opening stock balance for the next year.

 

I hope this helps, but please let me know if you have any other questions.

 

Thanks,

 

Rachael B.