Valuation of Closing Stock of Import Purchase

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Querist : Anonymous

Querist : Anonymous (Querist)

05 February 2011 Whether we have to take into consideration of Foreign Exchange Fluctuation on Closing Stock of Import Purchase lying with us on 31st March?

Import Purchase is fully paid out and nothing is outstanding to pay.

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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06 February 2011 Inventory is non monetary items , ERV will not apply on this.

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Querist : Anonymous

Querist : Anonymous (Querist)

07 February 2011 will u pls provide any reference regarding this so can i study it.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2025 Great question on **foreign exchange fluctuation impact on valuation of closing stock of import purchases**!

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### Scenario:

* Import purchases fully paid (no outstanding payable).
* Closing stock of these imports lying on 31st March.
* Query: Should foreign exchange (forex) fluctuations be considered for valuation of closing stock?

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### Accounting & Tax Perspective:

1. **Inventory is a Non-Monetary Item**
As per **Accounting Standard (AS) 11 on The Effects of Changes in Foreign Exchange Rates**, inventory (including closing stock) is classified as a **non-monetary item**.

2. **Foreign Exchange Rate Valuation**

* Non-monetary items are generally **recorded at historical cost** (i.e., cost at time of purchase).
* Changes in foreign exchange rates **after purchase date do not affect the valuation of inventory**.
* Therefore, **no adjustment for forex fluctuations is made to inventory**.

3. **When Does Forex Impact Arise?**

* Forex gains or losses arise only on **monetary items**, such as foreign currency payables or receivables that are outstanding at balance sheet date.
* Since your import purchase is fully paid, there is no outstanding foreign currency liability.

4. **Tax and Valuation References:**

* AS 2 (Valuation of Inventories) requires inventory to be valued at **cost or net realizable value**, not adjusted for forex fluctuation.
* AS 11 clarifies treatment of foreign currency transactions.
* ICAI’s guidance and accounting textbooks also affirm no forex revaluation on non-monetary items like stock.

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### Summary Table:

| Item | Forex Impact on Valuation |
| -------------------------------------- | -------------------------------------------------- |
| Inventory (Non-monetary item) | Valued at historical cost, **no forex adjustment** |
| Outstanding foreign currency liability | Adjusted for forex fluctuations (gain/loss) |
| Fully paid import purchase | No forex impact on closing stock valuation |

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### Reference to Study:

* **Accounting Standard (AS) 11 — Effects of Changes in Foreign Exchange Rates**
* **Accounting Standard (AS) 2 — Valuation of Inventories**
* ICAI Study Materials on Financial Accounting and Accounting Standards

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If you want, I can provide excerpts or detailed notes on these standards for your study. Would that help?

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