Closing inventory in jewellery business

Hi Sreedevi,

The stock valuation normally depends on which method the companies follows.Basically, every company nearly follows FIFO valuation.

Again as per ICAI AS 2 one needs to value the inventory as cost or market price, whichever is less.

So, if company keeps the stock at higher price. Auditor reports the same in his audit report. Again in jewellery the value of goods is at high price. So at the year end to reflect the correct profit or loss, management values the stock at its real price.

Regards,

Rachit.

Hi,

          As u r already aware AS-1 speaks about Prudence or accounting concept includes conservative concept, which says that "the loss should b recognized at its initiation and the profit should be recognized when its actually realized", because of which we should take conservative view in presentation of inventory also. The gold and silver prices are set every day and specify in the news papers, hence there l b change in the value of closing stock i.e., cost of inventory. in practical the rates are available in income tax ready reckoned.

In the Case of Jewellery Business the valuation of Closing Stock is done on Weighted average method. Because We cant use FIFO as it is not practically to say that the goods which has been received first will be sold first. And all over that, the cost of gold and silver fluctuate so much that it makes impossible to value stock at  prudent value.

I would like to clear that the stock is shown at lower of cost or market price not with an intention to pay less tax. The logic behind this rule is to follow the conservative approach in accounts. In my opinion even for jewellery business, the stock should be reported at lower of cost or market price.