Income tax: under what circumstances is an average cost method acceptable in determining cost price of newsprint for closing stock valuation?

Taxation Ruling IT 2289 deals with the question of the cost price valuation of trading stock. The Ruling states that newsprint should be valued using actual cost where the reels of newsprint can be readily identified both physically and in the records of the company.

A departure from the principles expressed in IT 2289, and the use of a method of valuation of newsprint which uses an averaging method, is only acceptable if the company can demonstrate all of the following: (a) use of an actual cost basis is impractical and commercially unrealistic because the newsprint reels cannot be identified both physically and in the records of the company; (b) the records kept in relation to newsprint satisfy the record keeping requirements of section 262A of the Income Tax Assessment Act 1936; and (c) the averaging method used gives a reasonable and sufficiently accurate valuation of the closing stock for the purposes of section 70-45 of the Income Tax Assessment Act 1997 .