Stock on Hand is accounted for at the end of each financial year. The reason this is included is because the purchase of goods has been claimed for but you haven’t sold the stock yet – it is still available for sale. This stock on hand has the effect of increasing the profit for the business (to offset against the purchase expense).
However Inland Revenue allow businesses with less than $10,000 stock on hand to exclude this from their financial reports and returns. This is beneficial for tax purposes because the purchase has been claimed but you don’t have to include the unsold stock as an addback to profit. Be aware thought that this doesn’t give a true representation of your net profit for the year in your financial reports though.
Please note that this $10,000 exemption doesn’t apply if in the prior year you’ve included stock on hand in your reports – you will still need to carry this on and include the new figure each year.
To work out stock on hand you have to add this up based on the GST exclusive cost price – not the retail price. This should also be done as close as possible to the end of the financial year (eg on the 31st March)
