21 APRIL
NEW ZEALAND GAZETTE
1397

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:

((a - b) × c) + ((e - (a - b)) × d)

             e

where—

b is the lesser of a and—

(i) The number of livestock of the taxpayer on hand at the end of the immediately preceding income 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.

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 using the average cost system the provisions of section 86C of the Act at the end of the income year.

15. 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:

((a - b) × c) + ((e - (a - b)) × 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, the number of livestock, other than male breeding sires, of the type 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 valued under a valuation method other than the herd scheme;

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 valued under the national standard cost scheme.

The average closing cost calculated according to the formula is applied to all of the livestock of the mature inventory group which are to be valued using the average cost system under the provisions of section 86C of the Act at the end of the income year.

Where the herd scheme is to be used in conjunction with national standard cost in relation to a type of livestock and no rising one year livestock of that type (or rising two year male non-breeding dairy or beef cattle in the case of dairy or beef cattle) were valued using a valuation method other than the herd scheme in the immediately preceding income year, then the rules contained in paragraph 28 of this determination must be applied before calculating the average closing cost in accordance with this paragraph.

16. Change in cost flow identification system when using the national standard cost scheme

Subject to the rules contained in this paragraph and in the following paragraphs of this determination, a taxpayer may change the cost flow identification system used when valuing the taxpayer’s mature inventory grouping under the national standard cost scheme from FIFO to average cost or vice versa.

Where a taxpayer changes to the average cost system, for the purposes of determining the average cost in the year of change, the average cost of mature livestock of the type in question on hand at the end of the immediately preceding income year will be calculated as follows:

a

b

where:

a is the total closing cost of that inventory grouping valued under national standard cost in the preceding income year; and

b is the total closing number of livestock in that inventory grouping valued under national standard cost in the preceding income year.

If the FIFO inventory system is being adopted, the opening inventory cost in the year of the change will be the total closing cost of that inventory grouping in the immediately preceding income year.

17. Reduction in livestock numbers where stock valued under national standard cost scheme and the herd scheme

Where a taxpayer in any income year values any livestock under the herd scheme and also values other livestock of