TRADING
STOCK
, DISCUSSION QUESTIONS
Completed costumes on 31 December 2019: Completed costumes were manufactured during 2019 at a cost price of R160
000 and were on hand on 31 December 2019. There were no uncompleted costumes on hand on 31 December 2019.
30% of this completed costumes were still on hand on 31 December 2020 and it was established that its value diminished
by 10% (which was supported by a letter from the SARS approving this) at the end of 2020 due to certain party themes
becoming less popular during 2020.
OPENING STOCK:
➢ Taliza td is carrying on a trade during the 2020 year of assessment
➢ The value of trading stock held and NOT disposed of by Taliza ltd at the beginning of the 2020 year of
assessment must be deducted when determine the taxable income
o Therefore this decreases the taxable income (s22(2)(a) of the income tax act)
➢ As the trading stock was included in Taliza Ltd closing stock at the end of the 2019 (previous year of
assessment), the value of the opening stock for the 2020 year of assessment is the same amount that was taken
into account as closing stock of the previous year (2019)
➢ Thus the opening stock deducting for the 2020 year of assessment is R160 000
CLOSING STOCK:
➢ Any person (taliza Ltd) carrying on a trade during the year of assessment must take the value of trading stock
held and not disposed of by the taxpayer at the END of the year of assessment into account when determining
the persons taxable income
➢ Therefore, this increases the taxable income (s22(1)(a) of the income tax act)
➢ The value of the closing stock is the cost price to the taxpayer LESS any amount representing the amount by
which the value of the trading stock has diminished due to change in fashion or any reason satisfactory to the
commissioner
o This has to be approved by SARS
➢ Therefore, the closing stock which needs to be included in terms of s22(1)(a) is:
o 160 000 x30%=48 000
o 48 000 x 10% = 4 800
o 48 000 – 4 800 = R43 200
STOCK
, DISCUSSION QUESTIONS
Completed costumes on 31 December 2019: Completed costumes were manufactured during 2019 at a cost price of R160
000 and were on hand on 31 December 2019. There were no uncompleted costumes on hand on 31 December 2019.
30% of this completed costumes were still on hand on 31 December 2020 and it was established that its value diminished
by 10% (which was supported by a letter from the SARS approving this) at the end of 2020 due to certain party themes
becoming less popular during 2020.
OPENING STOCK:
➢ Taliza td is carrying on a trade during the 2020 year of assessment
➢ The value of trading stock held and NOT disposed of by Taliza ltd at the beginning of the 2020 year of
assessment must be deducted when determine the taxable income
o Therefore this decreases the taxable income (s22(2)(a) of the income tax act)
➢ As the trading stock was included in Taliza Ltd closing stock at the end of the 2019 (previous year of
assessment), the value of the opening stock for the 2020 year of assessment is the same amount that was taken
into account as closing stock of the previous year (2019)
➢ Thus the opening stock deducting for the 2020 year of assessment is R160 000
CLOSING STOCK:
➢ Any person (taliza Ltd) carrying on a trade during the year of assessment must take the value of trading stock
held and not disposed of by the taxpayer at the END of the year of assessment into account when determining
the persons taxable income
➢ Therefore, this increases the taxable income (s22(1)(a) of the income tax act)
➢ The value of the closing stock is the cost price to the taxpayer LESS any amount representing the amount by
which the value of the trading stock has diminished due to change in fashion or any reason satisfactory to the
commissioner
o This has to be approved by SARS
➢ Therefore, the closing stock which needs to be included in terms of s22(1)(a) is:
o 160 000 x30%=48 000
o 48 000 x 10% = 4 800
o 48 000 – 4 800 = R43 200
