Dealership Car Vehicle Closing Stock Valuation

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pfcollect (Querist)
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20 August 2024 Auto Dealership Car Vehicle Closing Stock Valuation : Is it right to Reduce Incentives like MAC , DRF to reduce from Year End Closing Stock ? Please guide as per IndAS
unsold stock ,to come at correct valuation ,is it appropriate to reduce MAC [Wholesale Incentive] & DRF from Closing Stock?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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12 August 2025 Great question! When valuing closing stock of vehicles in an auto dealership under Ind AS (Indian Accounting Standards), it’s important to follow the principle that inventory should be measured at the lower of cost and net realizable value (NRV).
Here’s a breakdown related to your query about reducing incentives like MAC (Wholesale Incentive) and DRF from the closing stock value:

1. Inventory Valuation under Ind AS 2
Inventory is recorded at cost initially.
At each reporting date, inventory should be carried at the lower of cost and net realizable value (NRV).
NRV = Estimated selling price in the ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale.
2. Treatment of Incentives (MAC, DRF)
Incentives like MAC and DRF are generally given to dealers to encourage sales.
These incentives are often considered as reductions in the purchase cost or as adjustments to the selling price.
If these incentives are linked to sales performance (i.e., they are given only if the vehicle is sold), they are not to be deducted from the cost of inventory but recognized when the sale happens.
However, if the incentives reduce the acquisition cost or relate to vehicles not sold yet, and effectively reduce the realizable value, then they can be considered in calculating the NRV.
3. Reducing Incentives from Closing Stock?
Reducing MAC and DRF directly from the closing stock cost may not be appropriate if these are sales-related incentives earned upon sale.
But, if these incentives are expected to reduce the net realizable value (e.g., market conditions or incentive structures imply vehicles cannot be sold at full price), then adjusting NRV for these incentives is correct.
In practice, this means you should not reduce closing stock cost directly for MAC/DRF unless it reflects a permanent reduction in value (i.e., reflected in NRV).
Summary:
Do not reduce the cost of closing stock directly by MAC or DRF unless the incentives effectively reduce NRV.
Evaluate if the incentives impact the selling price or cost of vehicles.
The closing stock should be valued at the lower of cost and NRV (which may be after considering incentive effects).

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