Excise duty on closing stocl

Closing stock as per AS 2 requires us to include amount of taxes, cess, fee or any other expenditure necessarily incurred to bring the inventories to the present location and condition. However AS 2 has excluded items of expenditure which will be reimbursed from taxing authorities or trade discounts, etc. from the purview of the cost of purchases.

Closing stock is valued at cost or net realisable value whichever is lower. The excise duty element for these goods is not included in the value of stock even though the excise duty accrues soon after manufacture. This is because there is an air of contingency attached to these goods and there is no point in inflating the value of the goods with the duty element.

However as an information to the readers of the annual report, the likely liability on account of excise duty on such goods lying in the bonded warehouse is given as a note to the accounts.

The ICAI in its ‘Guidance note on accounting treatment for excise duty’ (guidance note) has also stated that excise duty liability on finished goods as on the balance sheet date lying in the warehouse needs to be mentioned by way of a note to the accounts and need not be provided in the accounts. The auditors should qualify their report in case this note is not given.

why we make provision for unpaid excise duty in debit of p&l in respect of closing stock

Hi Neha - thanks for the detailed explanation. Can you tell me if there is any impact on net profit by inclusion or non-inclusion of excise duty in closing stock?

we add excise duty element in value of closing stock ... on the other hand we make provision for unpaid excise duty in debit side.... there is no impact on profit or loss..