Patrick Pty Ltd (Patrick) is a property developer who purchased a 100-hectare block of land in the western suburbs of Melbourne for $100m in the 2018 income year. The following transactions occurred in the following income years:

1. In the 2019-year Patrick:
   1. Derived $45m from the sale of 30% of the land.
   2. Incurred $1m in subdivision and sale costs in having this 30-hectare parcel sold.
   3. Incurred $100,000 in interest and land tax expenses.
2. In the 2020-year Patrick incurred the following amounts on the remaining 70% of the land:
   1. $4m on planning approvals,
   2. $5m on development costs. These included, and sewerage and other general costs.
   3. $100,000 on interest and land tax.
3. In the 2021-year Patrick:
   1. Derived $55m in relation to the sale of 50% (35 hectares) of the land in small lots.
   2. Incurred $1m in sale costs directly related to the income derived in 2021.
4. The remaining 50% (35 hectares) have been retained for sale in future income years.

Assumptions:

1. Every hectare of the land has an equal value.
2. Patrick is a property developer and has owned the land as trading stock.
3. Patrick wants to use the cost method of valuing his trading stock at the end of each year as it will minimize tax.
4. Do not discuss the GST implications of the transactions.
5. This is not a long-term construction contract as discussed in TR 2017/D8.
6. The market value of his trading stock on hand at the end of each of the years was:
   1. 2019: $75m.
   2. 2020: $90m.
   3. 2021: $60m.

Required:

write a professional letter of advice advising Patrick of the trading stock implications of the above transactions. In this letter of advice please:

1. Calculate the following for each of the 2019, 2020 and 2021 income years at cost:
   1. Opening stock,
   2. Purchases,
   3. Closing stock,
   4. Gross profit, and
   5. Net profit.
2. Include all calculations in the appendix and discuss them in the letter of advice.
3. Briefly explain how the profit would change if he used the market value method to calculate closing stock in each of the years.
4. Use IRAC to explain your position in the letter.