Trading Stock Summary-1 PDF

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TRADING STOCKSS22(1): Closing Stock: - Provides that c/stock held and not disposed of @ y/end must be accounted for @: Lower of : Cost Price LESS any amt commissioner may think is a reasonable value of stock after taking into account any damage/deterioration or decrease in the M/V of that stock. If ...

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General on Trading Stock: - Trading Stock is basically anything that is acquired/created for purposes of sale or which will be incorporated in another asset that will be sold. - Revenue Asset therefore receipts will be included in GI. - Includes consumable stores and spare parts. - Sale of Trading Stock = Proceeds therefore GI inclusion - Purchase of Trading Stock = In prod. of income therefore s11(a) deduction Spare parts will be deducted under s11(d). - Deemed Stock: para (jA): - An amt has been received by a person from the disposal of a cap asset is deemed to be gross income if: 1. The asset has been manufactured/produced/assembled by the TP AND 2. It is similar to any other assets which the TP has manufactured/produced/assembled to be sold as part of TP’s trade. S22(8): Specific Transactions: - If not normal to business of selling stock = recoup s11(a). 1. Private/Domestic Use: s22(8)(a) -Deemed to have recovered the COST of such stock; of cost had previously been deducted. -If written down below COST; recoup the written down value. -If cost price can’t be determined = M/V. (Other) 2. Donations s22(8)(b)(i) - If to a PBO = Recoup @ cost (Deduction = 10% of TI) - If to any other person = Recoup @ M/V - Consider the exceptions. 3. Trading Stock sold not in trade @ less than M/V: s22(8) (b)(ii) - Recoup @ M/V -Deduct consideration (SP < M/V) 4. Consumed in normal trade: s22(8)(b)(iv) -TP originally gets a s11(a) deduction -Recoup @ M/V AND deduct @ M/V - Effect: Original s11(a) deduction

CASE LAW FOR TRADING STOCK: - For s22: Matching cost of stock with income from sale of that stock: - S22: States that no bearing on stock acquired and wholly dispose during same YoA: 1. Ernst Bester: Farmer sold sand, contractor removed sand from ground and paid farmer for the sand. Principle: Sand only becomes Trading stock once removed. If acquired and sold in same YoA = no s22 applies UNLESS 22(4)/22(8) is present. 2. Everready (Pty) Ltd: TP purchased going concern with no value attached to trading stock. TP argued that trading stock was acquired for no consideration and he wanted to claim s22(4). Principle: Consideration = value (not always M/V)

TRADING STOCK S22

S22(8): Specific Transactions Cont: 5. Trading Stock distributed as a dividend in specie: s22(8)(b)(iii) - Dividend other than in cash - Recoup @ M/V. 6. Change in intention stock: s22(8)(b)(v) - Recoup @ M/V - M/V = cost for CGT purposes - Ceases to hold trading stock, changed intention to hold asset as capital asset therefore: - Deemed disposal arises at M/V: (T/stock to cap asset) -TP immediately acquires it at a cost = M/V No CGT yet; when disposed = CGT, proceeds will be capital in nature therefore no GI inclusion.

S22(1): Closing Stock: - Provides that c/stock held and not disposed of @ y/end must be accounted for @: Lower of: 1. Cost Price LESS any amt commissioner may think is a reasonable value of stock after taking into account any damage/deterioration or decrease in the M/V of that stock. If written down to the lower of COST; SARS must be informed. OR 2. M/V S22(2): Opening Stock: - Deduct @ beg, of year: VALUE of c/stock from prev yr. - VALUE = Net of VAT S22(3): Cost Price: - Acquisition Cost + Further costs. - Further Costs: (IAS 2 Link) Costs incurred to get trading stock in position to be able to sell that trading stock. S22(4): Trading Stock acquired for no consideration: - TP deemed to have acquired trading stock at a cost equal to M/V - S11(a) = M/V - Donation of trading stock = deemed disposal therefore didn’t pay for that trading stock therefore deemed to have acquired it @ M/V.

S19: Reduction of Debt: Trading Stock: - What you owe = debt benefit - Debt is used to acquire T/S. - S19 vs Para 12A: S19: Recoupment of previous deductions therefore for T/stock mainly s11(a). Para 12A: Triggered by allowance and non-allowance assets. Recoupment i.t.o. S19 = capital allowances. EG: T/STOCK ON HAND Used the debt benefit of R500 to purchase Trading Stock. Debt waived in this year. Sol: s11(a) (500) Recoup 500 - i.t.o S19 Effect Nil EG(2): Same info but debt is not waived in the same YoA. 2018: s11(a) (500) c/stock 300 – written down value Effect 200 2019: Debt is waived O/stock (300) Recoup 300 – i.t.o S19 Recoup 200 – i.t.o s8(4)(a) Effect 200 EG: T/STOCK NOT ON HAND (DISPOSED): Debt is not waived in same YoA: 2018: s11(a) (500) GI 800 C/stock 2019: Debt is waived O/stock Recoup 500 – i.t.o s19

S23F: Anti-avoidance: - Prohibits the TP from claiming s11(a) deduction in following circumstances: 1. Stock not disposed in CY nor on hand 2. Stock disposed in CYoA but consideration from sale only accrues in a future year. - S23F(1): Cost is carried forward and claimed as s11(a) in 1st YoA which: - T/stock was disposed of OR - Included in c/stock OR - T/stock was destroyed. - Generally when you buy stock = s11(a); if not sold, added back i.t.o. s22(1). - BUT if stock is not received by you at y/end, prohibited to add stock back i.t.o. s22(1). TP receives a s11(a) deduction but no stock to which that deduction corresponds to. Therefore s23F prohibits the deduction of s11(a) until stock is recorded in TP’s records or sold.

TRADING STOCK S22...