1396 NEW ZEALAND GAZETTE No. 36

cost of rising one year livestock of that type for that income year; and

• a rising two year and older intake of livestock other than rising three year male non-breeding cattle, the national standard cost for rising one year livestock of that type plus the national standard cost for rising two year livestock of that type for that income year; and

• rising three year male non-breeding cattle, the national standard cost for rising one year male non-breeding cattle plus an amount equal to twice the national standard cost for rising two year male non-breeding cattle for that income year.

Inventory System Requirements under the National Standard Cost Scheme

11. General

In respect of sheep, cattle, deer and goats, as this livestock ages until it becomes mature livestock of the type the costs of production of the livestock accumulate and are incorporated into average values over balance dates. Once the livestock has first become mature livestock of the taxpayer at the end of an income year, the value of the livestock to the taxpayer under the national standard cost scheme becomes fixed (not accumulating any further production costs) and remains in the taxpayer’s inventory valuation for the mature inventory grouping until such time as the livestock is sold, transferred to another livestock valuation option or dies (each as determined having regard to any sub-inventory grouping adopted by the taxpayer and to the cost flow identification system applied by the taxpayer, as each is detailed further below).

In respect of pigs, the average cost identified with respect to the pigs entering inventory in any particular income year and remaining on hand at the end of the income year remains fixed (not accumulating any further production costs) and remains in the taxpayer’s inventory valuation for the mature inventory grouping until such time as the pigs are sold, transferred to another livestock valuation option or die (as each is determined having regard to any sub-inventory grouping adopted by the taxpayer and to the cost flow identification system applied by the taxpayer, as each is detailed further below).

For the purposes of identifying the end of year valuation of mature livestock under the national standard cost scheme, a taxpayer must have a cost flow identification system involving specific identification, average costing or first-in first-out (FIFO) costing, as detailed further in paragraphs 13 to 15 of this determination.

The average cost inventory system or the first in first out inventory system represent the minimum standard of inventory accounting for all types of livestock. The taxpayer may choose to use more accurate inventory accounting systems.

Different systems may be adopted by the same taxpayer for different types of livestock.

Where a mature inventory grouping of a type of livestock is broken down into a taxpayer into sub-inventory groups (as detailed further below), each sub-inventory group of that type of livestock must be valued by the taxpayer under the national standard cost scheme using the same cost flow identification system.

Where a taxpayer is using the national standard cost scheme to value any livestock of a type within an inventory grouping, or as the case may be, sub-inventory group, the taxpayer shall value all livestock of that inventory grouping or sub-inventory group under the national standard cost scheme, except for:

• livestock of that type valued under the herd scheme at the end of the relevant income year; or

• Bailees who elect to account for deficiencies of bailed livestock at market value or replacement price.

12. 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 treated as 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

13. 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 deaths.

Refinements 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 at the taxpayer’s option) of this determination is to be used in association with the minimum standard FIFO inventory system that 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 86I of the Act at the end of the income year.

14. Average cost system where the herd scheme was not used in the current income year or in the immediately preceding income year

This inventory system is the minimum standard of