Inventory and Investments

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Anil (Querist)

24 November 2009 Please let me know the criteria to be applied to treat something as :

a) inventory

b) Investments

Thanks.

CA. Rishabh Mittal

CA. Rishabh Mittal (Expert)

24 November 2009 Please go through AS 2 & AS 13.

Inventory - Held for sale in normal course of businee (Finished Goods) OR for further production (WIP) OR for use in further production of goods & providing services (Raw Material) OR consumables (Store & Spare Parts).

Investments - Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits
to the investing enterprise. Assets held as stock-in-trade are not investments.

Anil

Anil (Querist)

24 November 2009 Suppose a company invests in many lands and planning to sell them at profit when the time is right what should the lands be treated as?

Note:

1)The company has no other business other than buying and selling lands. Going by your first definition you can call it stock in trade

The company is waiting for the land value to appreciate.It is earing rental income from some lands. Going by your second difinition it seems like land should be treated as investments.

Aditya Maheshwari

Aditya Maheshwari (Expert)

24 November 2009 Ideally should be stock in trade.
The answer to this is a very relative to the position of the company. If the frequency is more than Stock in trade otherwise inv.

Many builders also do not sale entire building even after full construction and put some offices / house on rent. However the same is treated as stock in trade only.

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