Conversion of trading goods into fixed assets

If a company is in the business of Trading in Capital goods, Though such Capital Goods are treated as Fixed by other who purchase it but for the Company it is treated as Inventory Stock (Traded Goods).

As per AS-10 Accounting for Fixed Assets;  Fixed Asset Means,

Any asset held with the intention to use in producing goods or providing services.

AS-2, Inventories means any asset held for sale in ordinary course of business

Thus classification of an item as Inventory ( Traded Goods) And Fixed Assets depend on the Intention for which such item are held if it is held for sale it is Traded goods & if it is held for use in production or for providing services it is Fixed Asset.

When for a particular traded good the intention is changed from held to sale to held for use then it could be treated as Fixed assets. Entry would be

Fixed Assets A/c   Dr.

    To Stock

As the said inventory is converted to fixed assets inhouse there is no value addition in conversion and no VAT arises, But VAT paid on purchase could not be claimed as normal but to be claimed as are claimed for Capital goods.