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As 2

ipcc aspirant (Student CA IPC / IPCC) (49 Points)

07 August 2014

A company is in the business of refining,transportation through pipelines and marketing petroleum product. Can the stock of crude oil in pipeline and dead stock in tank be capitalised as fixed asset or valued at a fixed base price?

my query at what base they are to be valued.?

I expect anyone from this site to give comments.

thanks in advance

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5 Replies

CA. Mayur (Service) (147 Points)
Replied 08 August 2014

As per EAC Opinion No 21 – Volume XXI, the stock of crude oil in pipelines and dead stock in tanks is not held for the purpose of producing or providing goods and services as contemplated in AS 10 on Accounting for fixed assets. The stock of crude oil in pipelines and tanks is held in the process of production and the stock of finished products in pipelines and tanks are meant for sale in ordinary course of business. Accordingly, the stock of crude oil and finished products in pipelines is an inventory as per AS 2 and cannot be capitalised as a fixed asset.

ipcc aspirant (Student CA IPC / IPCC) (49 Points)
Replied 08 August 2014

Hello, mayur brother thankyou very much for your reply.

but my query is still persist whether it is valued at cost price or net realisable value which ever is lower or same any other base.

and what is meant by EAC

please suggest.

CA. Mayur (Service) (147 Points)
Replied 08 August 2014

Based on general industry practise, such crude oil extracted and are saleable condition are valued at net realisable value

EAC stands for Expert Advisory Committee opinion

Saket Sinha (Practise) (22 Points)
Replied 03 May 2021

Hi,

Oil stored at the bottom of the tank to maintain minimum level , what will be the accounting treatment ? Can management provide provision for this inventory in the books?

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 04 May 2021

I mean the advisory committee could be correct- but I guess, I will

Pipeline oil- goods stuck in transit will be sore t if the pipeline is transporting crude oil from Bombay to Delhi. Otherwise, it’s value is at crude oil WIP inventory.

Tank- I don’t consider it as dead stock because a tank is filled from the top and oil is sucked from the bottom. This will make it FIFO if the old oil doesn’t dissolve with new oil filling. But if the oil quickly dissolves, it can be treated as WIP, finished goods based on the nature of operations.