Valuation Of Inventory

Trade discount is reduced from cost of purchase but cash discount will not be reduced from cost of purchase. As per para 5.7 the Guidance Note on Tax Audit, it has been clarified that cash discount is financial cost & cannot reduced from Turnover, on the principle that interest paid to supplier cannot form part of cost of purchase.

 

No cash discount should not be deducted for the valuation of inventories.

But trading discount can be deducted for the valuation of the inventories.

But such cash discount will be debited in the profit and loss account.