2752 NEW ZEALAND GAZETTE No. 133

11. Separate sub-inventory groups for non-breeding and breeding livestock
    Notwithstanding any other provisions of this determination (including in particular the formulae in paragraphs 3 to 7), a taxpayer may elect to establish separate sub-inventory groups, with respect to each livestock type, for the livestock:

(a) Intended to be used by the taxpayer for breeding purposes; and

(b) Intended to be used by the taxpayer for purposes other than breeding.

Where separate sub-inventory groups are established by a taxpayer:

(c) All livestock of the relevant inventory group which are valued under the national standard cost scheme and are intended for breeding purposes or, as the case may be, purposes other than breeding purposes, must be included in the relevant sub-inventory group of the taxpayer until disposed of or death; and

(d) Separate calculations of average cost for each sub-inventory group may be made under the formulae in paragraph 3 to 7 of this determination and the taxpayer may separately apply the cost flow identification system adopted by the taxpayer for mature livestock of that type to each sub-inventory group.

Once livestock is included in a sub-inventory group it must continue to be accounted for under that sub-inventory group until it is sold, disposed of, or valued under one of the other livestock valuation options. It may not be moved to another sub-inventory group.

Cost Flow Identification Systems for the Valuation of Mature Livestock

12. First-in first-out system (FIFO)
    Where the taxpayer elects to use the FIFO system for cost flow identification, the cost and number of the livestock intake entering the taxpayer’s inventory system in an income year must be recorded. In accordance with the normal rules applying under FIFO systems, dispositions and deaths of mature livestock of the type in question, and where the taxpayer so elects maturing livestock of that type, will be treated as reducing first the oldest intake of livestock of that type on hand.

A taxpayer may however, at the taxpayer’s option and to such extent as the taxpayer chooses, with regard to any specific livestock, adopt a specific identification system for accounting for acquisitions, dispositions and death.

Reintroduction to the minimum standard of the FIFO inventory system as described above to more accurately account for purchases, sales and deaths affecting different intake years within the FIFO inventory system may be made.

Where the average closing cost calculated in accordance with paragraphs 4 and 6 (and 7 where the taxpayer’s option) of this determination is to be used in association with the minimum standard FIFO inventory system with average closing cost shall be applied to all of the livestock intake of that livestock in that income year valued under the provisions of section 86C of the Act at the end of the income year.

13. Average cost system where the herd scheme was used in the current income year or in the immediately preceding income year
    This inventory system is the minimum standard of inventory accounting where the herd scheme was not used in the preceding income year or the current income year.

Where a taxpayer uses the average cost system of cost flow identification, the value of the taxpayer’s mature and maturing inventory grouping of any type under the national standard cost scheme at the end of an income year shall be calculated by multiplying the number of mature and maturing livestock of that type on hand by the average cost calculated in accordance with the following formula in relation to that type of mature and maturing livestock and the income year:

(\frac{(a - b) \times c) + ((e - (a - b)) \times d)}{e})

where—

a is the number of livestock of the taxpayer on hand at the end of the immediately preceding income year, being at that time mature livestock;

b is the lesser of a and—

(i) The number of livestock of the taxpayer on hand at the end of the immediately preceding year, being at that time mature livestock; or

(ii) At the election of the taxpayer except where the livestock are pigs, the number of livestock of the taxpayer, being livestock of the taxpayer on hand at the end of the immediately preceding income year which were at the time mature livestock or during the income year maturing livestock of the taxpayer,—

which are disposed of by the taxpayer or die (while owned by the taxpayer) during the income year;

c is the average cost or value of mature livestock of the taxpayer on hand at the end of the immediately preceding income year;

d is the average cost of livestock intake of the taxpayer as calculated under paragraph 4, 6 or 7 of this determination;

e is the number of mature livestock of the taxpayer on hand at the end of the income year.\n
The average closing cost calculated according to the formula shall be applied to all livestock of the mature inventory group which are to be valued under using the average cost system the provisions of section 86c of the Act at the end of the income year.

14. Average cost system where the herd scheme was used in the preceding income year or is to be used in the current income year
    This inventory system is the minimum standard of inventory accounting where the herd scheme was used in the preceding income year or is to be used in the current income year.

Where a taxpayer uses the average cost system of cost flow identification, the value of the taxpayer’s mature and maturing inventory grouping of any type under the national standard cost scheme at the end of the income year shall be calculated by multiplying the number of mature and maturing livestock of that type by the average cost calculated in accordance with the following formula in relation to that type of mature and maturing livestock and the income year:

(\frac{(a - b) \times c) + ((e - (a - b)) \times d)}{e})

where—

a is the number of livestock of the taxpayer on hand at the end of the immediately preceding income year, being at that time mature livestock valued under a valuation method other than the herd scheme;

b is the lesser of a and—

(i) The number of livestock, other than male breeding sires, of the taxpayer on hand at the end of the immediately preceding year, being at that time mature livestock; or

(ii) At the election of the taxpayer except where the livestock are pigs,