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valuation of inventory

05 October 2007

Whether valuation of excisable finished goods includes excise paid/payable at gross or net of cenvatable excise duty paid on input material at the year end?

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5 Replies

Ramasubbu K (Sr.GM - Finance & Company Secreta) (685 Points)
Replied 05 October 2007

Valuation of excisable goods shall be valued at the cost or or market price whichever is lower. However and duty paid on the input material which may be recovered infuture shall be deducted while arriving the cost. So the duty at point which shall be adjusted /paid/recovered shall not be taken in to account for valuation

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CA. Raviprakash M.S (Chartered Accountant) (154 Points)
Replied 05 October 2007

refer sec. 145A of it act for answer to your question. inclusive method to be followed in valuation fo cl. stock. hence taxes, duty etc. will be included in closing stock Also refer accounting std 2 of icai.

(Guest)

INVETORY ARE VALUED AT LOWER OF EITHER COST ARE MARKET VALUE W.E.L.

Dinessh Kumar (Articled Asst.,) (193 Points)
Replied 05 October 2007

Hi jonali, When you are valuing the inventory, you are including the excise duty. it is correct as per income tax law. But you should not adjust against the input credit availble. Because As epr Rule 6 , input credit is adjusted against the Payable only at the time of payment of excise duty or service tax. you are creating only an provsion entry it cannot be said as payment and hence excise duty should be included without considering the input credit

Srivathsan Rangarajan (Chartered Accountant) (66 Points)
Replied 10 October 2007

hi, Inventory has to be valued at lower the cost and net realisable value. Cost does not include taxes recoverable from the taxing authorities. Hence, where the final products are liable to excise duty the duty paid on inputs being recoverable against the possible positive outflow of excise duty will not form part of the cost of inventory under GAAP. But, section 145A of the Income tax Act prescribes an inclusive method of accounting where all indirect taxes whatsoever shall be part of cost of the materials. However, the department with a view to obviating undue hardship to assessees has clarified to show by way of reconciliation how the method of accounting does not affect the profits of the company be it inclusive or exclusive. Oflate companies have started giving just a note in form 3CD that it consistently follow a non-inclusive method of accounting and that it does not affect the profit of the company under normal circumstances.