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Valuation of inventory of a manufacturing concern

Nihar (Student) (49 Points)

02 January 2014

Hi,

There is a concern who is involved in the activity of Manufacturing.

It purchases raw material which is an excisable raw material and also liable to VAT.

It process the said raw material and manufactures finished goods. The said finished goods are also excisable and also liable to VAT.

For the purpose of valuation of inventory i am a little confused about the Value to be considered for valuation of inventory.

The Main confusion is regarding the Excise & VAT Factor which needs to be either to be considered / ignored for valuation of inventory. And if the answere to the said question is in affirmative, "To what extent?"

Thanks.

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5 Replies

Jeetendra Goyal (Student CA Final ) (175 Points)
Replied 02 January 2014

excise duty on closing inventory is to be added to cost of inventory as manufacturing expenses....... no relevancy of vat treatment for the purpose of valuation of inventory

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Nihar (Student) (49 Points)
Replied 02 January 2014

Thats ok But by what way will you add the Excise Duty. I mean, Would it be the Excise Duty already paid in the Raw Materials or would it be Excise Duty which is actually payable on Finished Stock after deduction of Excise Credit on Raw Material purchased.

I am very confused as there are lot of different valuation calculations are going on in the mind.

Jeetendra Goyal (Student CA Final ) (175 Points)
Replied 02 January 2014

excise duty on raw material will not be added to cost of raw materail as the credit is available of the same....... excise duty on closing stock ( final product ) applicable on balance sheet date which u will collect from customer at the time of sale is to be added........ and for the same amt provision for unpaod excise duty dr in profit and loss accout is to be passes.....

i think u will understand noww....

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CA KARAN MAINI (Practising CA) (106 Points)
Replied 02 January 2014

Yes. Excise duty levied on the final product entered in DSA shall be added to the cost of production of finished goods. There is also guidance note of icai on accounting treatment of excise duty which is mfring exp. As well as income. Provision for unpaid excise duty to b made. As per sec. 145A any duty,tax or cess levied shall be added while valuation of inventory on bs date.

CA KARAN MAINI (Practising CA) (106 Points)
Replied 02 January 2014

Adjusted p&l account shall be prepared in persuance with sec. 145A to the excise duty and cess levied included while valuation of salesv,purchases & inventory.