All amounts are in New Zealand dollars and GST$-$exclusive unless otherwise stated.

Please answer the question following NZ tax law.

Serenity Furniture & D$$cor Limited $($SFD$)$ is a New Zealand tax resident company. SFD has one retail shop in Gisborne selling furniture and home d$$cor$.$ SFD$\text{'}$s annual turnover for the income year ended $31$ March $2024$ was $$150,000.$

The following information relates to SFD$\text{'}$s trading stock for the income year ended $31$ March $2024$:

$1.$ On $1$ April $2023,$ SFD had $$5,000$ of stock on hand. During the year, SFD purchased $$45,000$ of stock. As at $31$ March $2024,$ the cost of stock on hand was $$9,000.$

$2.$ In April $2023,$ SFD took a large desk from its trading stock and started using it as a sales counter $($i$.$e$.$ it became a fixed asset of the business$).$ The market value of the desk at the time was $$1,100.$ The desk was included in opening stock but excluded from the closing stock value outlined above. The Inland Revenue$$prescribed depreciation rate for the desk is $13\%$ diminishing value.

 

 

Required:

$($a$)$ Assuming SFD wishes to minimize its taxable income, explain how SFD should value its closing stock at $31$ March $2024.$ Provide one $(1)$ relevant legislative reference. $(3$ marks$)$

$($b$)$ Explain the income tax treatment of the desk in the income year ended $31$ March $2024.(4$ marks$)$

$7$ marks