What should be the valuation policy to be adopted by a company, who is trading in Bonds, in respect of closing stock of Bonds? What would be the applicable accounting standard?
12 April 2010
There is no specific accounting standard which describe the procedure of valuation of bond for trading organisation. We can refer the AS-2, Inventories which is in general. Bonds will be covered in inventories as for trading organisation bought with the motive of sale in future not to holding till maturity.
AS per AS-2, the closing stock will be valued at cost or market value whichever is less. And for determination of closing stock, the FIFO or weighted average method to be followed.
Now the question is how to derive the market value of the bond. Generally the fair value of bond i.e. present value of cash flows which is expected to generate from the bond discounted at discount rate should be considered the market value of the bond. So you can derive the value of the bond on this basis.
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