This is really not a separate topic at all, more just an example of the rule.
It deals with how they deal with certain assets.

London Australia Investment Co v FCT (1977) - The so-called “banking and insurance cases”, illustrate one group of cases in which the courts have considered that the activities connected with making and realizing investments can generate ordinary usage income.  In the activities of such institutions, assets which to other taxpayers might be considered to be investments and hence capital, are apparently revenue assets of the business.

Facts: Taxpayer was an investment company.  It invested in shares in order to obtain dividends.  In order to maintain a desired yield, it was necessary from time to time to sell the shares which had risen in value and accordingly paid a lower yield (ie where the Price Earnings ratio too high).

(Similarly, in banking and insurance companies, when they have to keep reserves for payments, the funds are often invested in shares and short term investments etc.  When they are called upon to pay claims, run on cash at bank, etc, they have a policy of going back to those investments and realising the shares.  Invariably, there shares which are sold are the ones which the yields have dropped, which are usually ones which have risen in value.  End result is they make a profit.

Issue: What is the nature of such profit – is it a capital profit?
In effect, it is a normal operation, a normal profit arising form the way the business is carried on.  They have been held to be of an income nature.  However they were not trading stock.

Held: Court looked at fact that the company has a specific policy which means that in the ordinary course of business you will from time to time be realising these assets at an enhanced value, making profits, and it will therefore be assessable ordinary income.

(e) Non-cash business benefit
FCT v Cooke and Sherden (1980)

Facts: Holidays provided by a manufacturer to retailers who achieved certain sales targets of the manufacturer’s goods were held not to be assessable under s25(1) or 26(e) ITAA36.  The decision exposed gaps in the tax law coverage of business benefits, in that the decision indicated that non-cash business benefits, if structured appropriately so as not to be convertible into cash, could avoid taxation.  To deal with this sort of problem, s21A was introduced into ITAA36 in 1988.  Under s21A, a non-cash business benefit that is not convertible into cash is to be treated as if it is convertible to cash.  (p281 ATL)

FCT v Cooke and Sherden is often an example of a gift-type payment.  In that case the taxpayers were not assessed on the value of a holiday primarily on the convertibility issue – either because there was no income as the holiday was not convertible into cash, or it was income of nil value because that was the amount into which it could be converted.  But the prize was undoubtedly the product of their business.

SECT 21
Where consideration not in cash
(1) Where, upon any transaction, any consideration is paid or given otherwise than in cash, the money value of that consideration shall, for the purposes of this Act, be deemed to have been paid or given.
(2) This section has effect subject to section 21A

SECT 21A
Non-cash business benefits
(1) For the purposes of this Act, in determining the income derived by a taxpayer, a non-cash business benefit that is not convertible to cash shall be treated as if it were convertible to cash.
(2) For the purposes of this Act, if a non-cash business benefit (whether or not convertible to cash) is income derived by a taxpayer:
(a) the benefit shall be brought into account at its arm's length value reduced by the recipient's contribution (if any); and
(b) if the benefit is not convertible to cash—in determining the arm's length value of the benefit, any conditions that would prevent or restrict the conversion of the benefit to cash shall be disregarded.
(3). . . .

(3) Trading Stock

ITAA 1997, Division 70
Definition of ‘trading stock’ as defined in s70-10 ITAA97:
(a) anything produced, manufactured or acquired that is held for purposes or manufacture, sale or exchange in the ordinary course of a business, and
(b) live stock.

The definition of “trading stock” in s70-10 ITAA97 focuses on the reason for which property is held by a taxpayer. For property to become trading stock it must be held for the purpose of manufacture, sale or exchange in the ordinary course of the taxpayer’s business. 
 
The test is whether the item is held for re-sale in the ordinary course of the business. 
• an asset which might be sold but only in extraordinary circumstances cannot be trading stock;
• an asset held by a taxpayer whose activities do not amount to a business, such as the home unit owned by an investor cannot be trading stock; and
questions can arise about whether and when raw materials, packaging materials, spare parts, consumables and so on, which are not held for sale per se, are within the definition of trading stock.

Tax Accounting For Trading Stock

The rules for bringing trading stock to account are found in s70-35.  They operate by comparing the value of trading stock at the end of the year with that at the beginning of the year.  Where the value of stock on hand at the end of the year exceeds the opening value of stock, the difference is included in assessable income under s70-35(2); where the value of stock on hand at the end of the year is less than the value at the beginning of the year, the difference is an allowable deduction.  The closing value of stock for one income year becomes the opening value for the next year (s70-40). 

ITAA 1997 s70.35
You include the value of your trading stock in working out your assessable income and deductions
(1)  If you carry on a * business, you compare:
      (a)  the * value of all your * trading stock on hand at the start of the income year; and
      (b)  the * value of all your * trading stock on hand at the end of the income year.
(2)  Your assessable income includes any excess of the * value at the end of the income year over the value at the start of the income year.
(3)  On the other hand, you can deduct any excess of the * value at the start of the income year over the value at the end of the income year.

ITAA 1997 – s70.40
Value of trading stock at start of income year
(1)  The value of an item of * trading stock on hand at the start of an income year is the same amount at which it was taken into account under this Division or S328 E (about trading stock for small business entities) at the end of the last income year.
Expenses are deductible under s8-1 ITAA97 when they are incurred by a taxpayer.  In the case of expenses incurred to acquire trading stock, an amount will be reincluded in assessable income under s70-35 ITAA97 if the stock remains on hand at the end of the income year. The ATO issued Taxation Ruling IT 2670, putting the view that trading stock is “on hand” when the taxpayer is in a position to dispose of the stock on its own behalf.