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Treatment under IND AS for conversion of capital asset to inventory

TUSHAR PURI (10 Points)

29 August 2022

i need help in respect of accounting treatment wherein capital asset has been converted into stock in trade

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4 Replies

Yasaswi Gomes new (Finance ) (4492 Points)
Replied 29 August 2022

What is the capital asset? A financial instrument or physical asset?

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sabyasachi mukherjee (27117 Points)
Replied 30 August 2022

Capital asset as defined
under the income tax act as an asset tangible or intangible , movable or immovable, used for the purpose of business or personal use. Sec 2(14)..
Conversion of capital asset into stocknin trade . Some accounting standards norms are mentioned.

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Yasaswi Gomes new (Finance ) (4492 Points)
Replied 31 August 2022

Mr. Sabyasachi confirmed it could be both and now it is simple. Stock in trade? The assets like equipment is already stock in trade. If you look at PPE standard, it tells us what spares are warehoused and put into inventory eg nuts and bolts. What expenses are capitalised. etc

Yasaswi Gomes new (Finance ) (4492 Points)
Replied 31 August 2022

Now when you go through PPE standard, you will understand that you cant treat it under inventory right? Once you took stock as capital asset and used it for trading, its a capital asset. You need to use the disposal of non current assets assets and keep the machinery for sale under 'Held for sale' classification. I has a measurement like lower of cost or FVLCS' and impairment is appplicable. It cannot be amortised or depreciated when in this classification. You can find additional details in MCA website. Same way, look in revenue recognition standard. As far as I can remember, there is no treatment specially mentioned for selling used goods.