Taxation Ruling IT 2402 - Income tax : absorption cost basis of valuing trading stock - fringe benefits tax

What this ruling is about: Taxation Ruling No. IT 2350 sets out the official view that the absorption cost method is the correct means of ascertaining the cost of trading stock on hand at the end of a year in a manufacturing business. For the purposes of sub-section 31(1) of the Income Tax Assessment Act the cost price of manufactured trading stock on hand at the end of the year includes not only material and direct labour costs but also an appropriate proportion of production overhead costs without which the trading stock on hand would not be produced at all. 2. This Office was recently asked whether Fringe Benefits Tax should be taken into account as a production overhead cost when valuing stock on hand under the absorption cost basis for a manufacturing business.


Ruling: 3. Fringe Benefits Tax is not regarded as a cost which ought to be added to the cost of manufactured goods for absorption costing purposes. It is seen as too remote from the process of manufacturing goods and is considered to be of a similar nature to the expenses listed in paragraph 13 of Taxation Ruling No. IT 2350. COMMISSIONER OF TAXATION 28 May 1987






Related rulings: IT 2350
Legislative references: 31(1)
Subject references: TRADING STOCK - VALUATION OF ABSORPTION COST METHOD - FRINGE BENEFITS TAX