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Conversion of capital asset into stock in trade

3641 views 3 replies

Krishna Prasad

Partner

260 Points Posted on 17 September 2014

MY CLIENT IS A PRIVATE LIMITED COMPANY. IT HAS CAPITAL ASSETS IN THE BALANCE SHEET. ON 01.04.2012 IT TRANSFERRED THE CAPITAL ASSETS INTO STOCK IN TRADE AT BOOK VALUE. DURING THE FINANCIAL YEAR:2013-14, IT SOLD THE CONVERTED CAPITAL ASSET. AT THE TIME OF TRANSFER THERE IS NO CAPITAL GAIN BUT DURING THE FY:2013-14, THERE IS CAPITAL GAIN AS WELL AS BUSINESS PROFIT.

NOW MY QUESTION IS HOW TO GIVE TREATMENT TOWARDS LONG TERM CAPITAL GAIN AND BUSINESS PROFIT. ENTRIES REQUIRED.

PL SUGGEST ME.

Replies (3)

Anubhav

Chartered Accountant

429 Points Posted on 20 September 2014

Hi,

Conversion of asset to stock amounts to capital gain.

Capital gain will be in the year in which such stock is sold.

Computation of cap gain will be from cost of acquisition to the date of transfer of asset into stock.

Business income will be computed as sale consideration of stock less value considered for transfer to stock from capital asset.

For any further query PM or mail us.

anubhavjain @ ajhco.in

AJH & CO.

Chartered Accountants

C S Neelam Suthar

50 Points Posted on 23 October 2015

hey..

what will be accounting entry in books for such converstion??

Srinivas Khanna

2 Points Posted on 20 October 2018

Debit Stock in trade and credit capital asset In case the value of stock adopted is higher debit profit and loss, if lesser credit profit and loss with differential amount