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Valuation of inventory

CA dhanpat raj (consultant) (83 Points)

13 April 2016

i want to know that why we include excise duty in valution of closing stock for the trader of exciseable goods who just passon such duty to purchaser of such goods. the duty is just a tax which was paid on purchase and recover from sales and it doesn't increase the value of our closing stock because this is a fictitious cost which have no effect on profit.

if above dealer is manufacturer then also on closing stock we have no liability to pay the excise duty, so, why we include such amount in valution. the liability only arise when we sale that stock. this inclusion of excise not show true picture of statement of affair for the year.

so, i want to know the reason for inclusion of above excise in valution of closing stock in case of dealer as well as manufacturer?

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4 Replies

ACCOUNTANT (Student) (559 Points)
Replied 14 April 2016

On valuing closing stock., all expenses( including freight,insurance,taxes,duties,all are to be included) as per AS-2 for valuation includes for further sale or such further realisation.,Companies (Accounting &Record ) Rules mention to do so.,There is no point of descrimination., for purpose of valuation is ascertainment of realizable value., and no trader would include statutory duty payment from his own p&l a/c.Even statutes prescribe to shift the burden of manufacture on CONSUMER.,

Vikas Shah (Articled Assistant) (41 Points)
Replied 14 April 2016

Dear Sir,

To eliminate effect of excise duty paid in both opeining stock & closing stock, we create provision for excise duty on stock. There will no question of fictitious profit thereafter.

CA dhanpat raj (consultant) (83 Points)
Replied 15 April 2016

but we increase value of closing stock by making provision of excise duty ? which is fictitious

CA dhanpat raj (consultant) (83 Points)
Replied 15 April 2016

mahal ji,

you said that "no trader would include statutory duty payment from his own p&l a/c.Even statutes prescribe to shift the burden of manufacture on CONSUMER"

rather you treat excise duty as statutory payment, so, you want to said that exice not include in valuation of closing stock. give me the proof of such treatment.