Does your business trade in stock of any sort of nature? If so, a recent Supreme Court of Appeal judgement might be of interest to you.
In CSARS v ATLAS COPCO South Africa (Pty) Ltd, it was decided in the supreme court of appeal that a company’s policy which provides for the writing down of the trading stock value is not sufficient to allow for the decreased value for closing stock purposes.
The facts of the case involve a Swedish parent company which had a company policy which provided that the group of companies should write down the value of their closing stock by a certain percentage at year end as a result of that stock not being sold during the year.
Section 22(1)(a) of The Income Tax Act No. 58 of 1962 allows for the writing down of the value of trading stock, provided that such a write down is reasonable and relates to the diminishing of the stock by reason of damage, deterioration, change of fashion, decrease in the market value or for any other reason satisfactory to SARS.
For accounting purposes, it is generally accepted that trading stock will be adjusted to the net realizable value at year end, as determined in accordance with IAS2, IFRS, SA GAAP.