10 November 2012
Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.
In such a case land purchased as stock in trade is not a fixed asset , hence, AS-10 is not applicable.
Now, AS-2 "Valuation of inventories" deals with the valuation of closing inventory (stock-in-trade).
As per As-2: This Standard should be applied in accounting for inventories other than: (a) work in progress arising under construction contracts, including directly related service contracts (see Accounting Standard (AS) 7, Construction Contracts); (b) work in progress arising in the ordinary course of business of service providers; (c) shares, debentures and other financial instruments held as stock-in-trade; and (d) producers’ inventories of livestock, agricultural and forest products, and mineral oils, ores and gases to the extent that they are measured at net realisable value in accordance with well established practices in those industries.
Accordingly Land as stock-in-trade covered by AS-2 except the items which is not covered i.e., construction, etc.
Definition of Inventory: Inventories are assets: (a)held for sale in the ordinary course of business; (b)in the process of production for such sale; or (c)in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Accordingly land as SIT is an inventory as per AS-2.
Valuation: The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Costs of Purchase: 7. The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition.
Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase.
Analysis: Cost of aquisition is a cost wich is incurred in bringing the inventories to their present location and condition.
Hence, Cost of aquisition will be added in the purchase value of land.
Note: Even if land is not a SIT, all the costs directly attributable to purchase of land is always added in the purchase value of land.
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