Valuation of Shares

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CA Rahul Sureka

CA Rahul Sureka (Querist)
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23 April 2009 I have one Dought regarding Valuation of Shares as closing Stocks. Can we Value them at Cost ?

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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23 April 2009 The shares should be valued at FMV.
The "Fair Value (FV)" of a company's shares is to be computed by averaging the values obtained by the "Net Asset Value (NAV)" method and the "Profit Earning Capacity Value (PECV)" method.

These computations are to be largely based on audited accounts of the recent past.

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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23 April 2009 Read this read for more queries:

https://www.vikalpa.com/pdf/articles/1990/1990_oct_dec_3_10.pdf

CA Rahul Sureka

CA Rahul Sureka (Querist)
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23 April 2009 Our Company is not assets management Co. We are trader in shares . our normal business is of trading shares. as per AS2 we need to value Cost or markrt prise which ever is less..... can we value this stock at COST

Aashok Kumar Sharma

Aashok Kumar Sharma

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02 August 2025 Got it — you’re dealing with shares as **inventory** (stock-in-trade) because your company is a **share trader**, not an asset management company. So, the question is:

### Can you value shares (stock-in-trade) at **cost** instead of **fair market value (FMV)**?

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### Here's the practical and accounting perspective:

**1. Accounting Standard 2 (AS 2) — Valuation of Inventories**

* AS 2 requires inventories (including stock-in-trade) to be valued at the **lower of cost or net realizable value (NRV)**.
* For shares held as stock-in-trade (trading inventory), the **NRV is generally the market price**.
* So, **valuing shares at cost is allowed only if cost is lower than market price.** If market price is lower than cost, then you must value at market price (i.e., lower of the two).

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**2. What if market price > cost?**

* You **cannot value stock-in-trade higher than cost** (no mark-up allowed).
* If market price is higher than cost, value at **cost**.

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**3. What if market price Cost | Value at **Cost** |
| Market Price cost), **that’s not acceptable**.
* For **investment companies (non-trading)**, valuation at FMV is allowed/required under AS 13.

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If you want, I can help draft a valuation policy note for your company based on this principle. Would that be helpful?

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