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A/cing Treatment For Valuation of Shares Trading

Manish Jain (Article) (47 Points)

14 July 2010

Which method of valuation should be followed for shares trading business for closing stock of shares.

If the concern followes cost or market which ever is less. Then the difference between cost And Market value should be considered or not.

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3 Replies

CA Narendra Gupta (CA ) (256 Points)
Replied 14 July 2010

hi manish ,
If you are asking about personel invester's point of view then share are to be valued at cost . Market value of share is to be neglected .

As per AS-10 if there is a permenant fall in the value of share then it should be recorded at that below cost value and the difference should be charged to P/L a/c.

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ABHINANDAN JAIN (CA Student) (886 Points)
Replied 17 September 2010

for valuation, first you need to determine whether you are short term trader or long term

If you are a sht term-then as per as13, investment held as stock should be valued at cost or market price whichever is lower

If you are a long term trader,then it should be Valued at cost

Now question comes how to determine COST in both cases:

Cost mey be detrmined in the following manner:

2 types of determination of COST PRICE:

1-FIFO METHOD-where the first stock purchased will go first out.
if this method is followed,then you also have to calculate Profit or loss on sale of Invetsment(shares)

2-Wheigted average Cost Method-here also two methodology is to be followed:

a) Moving Average

b) Static Average

* In case of moving Average-you should calculate Profit/Loss on each and every sale and Purchase of shares. The name is so called becoz here average moves to some other avg on each and every transaction. the closing stock is valued

* In case of static avg- here profit or loss is to be calculated at the end of year considering all the during the year transaction. the avg prices of all purchased stock is to be compared with avg prices of all the sold stock and diffrence is trfd to P& L A/c. The cost of closing stock will be the avg cost of all purchased stock.

Some points

1.The Institute (ICAI) accepts both the method as per as-13. But student who will be appearing for the exam should calculate profit or loss on each and every Buy abd sale of stock i.e. Moving avg method is to be followed by the studs.

2. In case where the individual ot organisations have large number of transaction during the year,then he will not calculate profit or loss on eachg and every purchse sale i.e. adopt for moving avg methodology,he or ther will be going for static avg concept.

3.after determing COST (following above principles), we will compare the Cost with the Market price of that stock for valuing Stock in case of Short term Trader or Investor

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 06 February 2011

Originally posted by : Manish Jain
	Which method of valuation should be followed for shares trading business for closing stock of shares. If the concern followes cost or market which ever is less. Then the difference between cost And Market value should be considered or not.

a trading business in shares has no intention to get benefit of LTCG .( STCG may be applied with certain clause) so the shares at the end of business day close are stock in trade , and would be valued at last traded price on BSE. on the 31st day of march or earlier day in case the 31st public holiday.