Conversion of investment in shares to stock in trade

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

26 September 2011 please advice in case of conversion of investment in shares to stock in trade at what values be they transferred??
As per IT Act sec 45(2) for the purpose of calculating capital gain the fair market value on the date of the conversion should be taken but that is only for the purpose of computation, can in accounts they be transferred at cost.
AS 13 states a rule for reclassification but I reckon the same is not applicable here as we are not reclassifying but converting!
PLEASE REPLY IT'S URGENT
THANKS IN ADVANCE.

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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26 September 2011 As per AS- 13
29. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost should be the fair value of the securities issued (which in appropriate cases may be indicated by the issue price as determined by statutory authorities). The fair value may not necessarily be equal to the nominal or par value of the securities issued. If an investment is acquired in exchange for another asset, the acquisition cost of the investment should be determined by reference to the fair value of the asset given up. Alternatively, the acquisition cost of the investment may be determined with reference to the fair value of the investment acquired if it is more clearly evident.

So, in my opinion, if the Investments are introduced as proprietor/ partner contribution, they may be valued at either cost or fair value as no asset is given up.
But, you are required to classify the investment as Current or non-current investment. So, according to the class you classify, in case of current, you arerequired to value it at fair value at year end and in case of non-current, you can recognise the same at cost.

Further, in my opinion, if it is partnmership firm, they should be valued at fair value.