Absorption Costing for Retail and Wholesale Industries ? Update
The Australian Taxation Office (ATO) have had a change of attitude to stock valuation procedures over the last few years.
The ATO opinion was that full absorption costing was necessary for all retail and wholesale businesses.
Very few small businesses had the expertise to be able to comply with this requirement. And the adjustment is reversed the next year when the stock is sold, so why the need?
Fortunately sanity prevailed!
The ATO practice is that full absorption costing applies to those taxpayers or consolidated groups where the consolidated gross operating revenue for the financial year is $10 million or more.
Taxpayers not covered by this practice statement will still be expected to use a reasonable and practical basis to correctly bring to account their trading stock.
