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

The following information relates to SFD'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 minimise its taxable income, explain how SFD should value its closing stock at 31 March 2024. Provide one (1) relevant legislative reference.

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

Refer to Income Tax 2007 for reference https://www.legislation.govt.nz/act/public/2007/0097/latest/DLM1512301.html