Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

Capital gain

Ashish (student) (366 Points)

08 November 2011

We know that the definition of transfer included conversion of fixed asset into stock in trade, but my question is why does a company convert its fixed asset in stock in trade one?

Reply
Follow
Share

7 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 08 November 2011

When the assessee wants to carry on a Business of an Item which he has capitalised it, then he shall have to convert the Fixed Asset into Stock in Trade and then sell the Stcok. You will understand it better after going through the below example:-

For Eg : Mr. A has 3 Freehold Properties in his Balance Sheet. Now Mr. A wants to carry on the Business of a Land Developer. Then the Land shall be converted into Stock in Trade, so that Mr. A can develop and sell the Land.

Regards,

Devendra K

1 Like

Upgrade to CAclubindia Pro. Subscribe Now!

Ashish (student) (366 Points)
Replied 08 November 2011

so much of thanks

Devendra (Chartered Accountant) (4775 Points)
Replied 08 November 2011

You can thank me using the Thank User Icon.

CA Pallav Singhania (IT System Auditor) (33262 Points)
Replied 08 November 2011

Mrs. Z got lots of jewellery on the occassion of her marriage... and many others on other ocassions....

it was shown as an capital asset...in her balace sheet..

Now she wants to open a jewellery shop of her own...with her jewelleries...

Now all the capital assets are converted into stock in trade....

if she sells the jewellery...the revenue exceeding the FMV....the the excess amount will be treated as business gain??

only at the time of convertion of asset into trade the indexation will be taken into the consideration??

1 Like

U S Sharma (glidor@gmail.com) (21063 Points)
Replied 08 November 2011

Originally posted by : Aryan Singhania
	Mrs. Z got lots of jewellery on the occassion of her marriage... and many others on other ocassions.... it was shown as an capital asset...in her balace sheet.. Now she wants to open a jewellery shop of her own...with her jewelleries... Now all the capital assets are converted into stock in trade.... if she sells the jewellery...the revenue exceeding the FMV....the the excess amount will be treated as business gain?? only at the time of convertion of asset into trade the indexation will be taken into the consideration??