A Guide To ICDS-II Valuation Of Inventories

MCQ SELF CHALLENGE # 0095 ON ICDS-II VALUATION OF INVENTORIES

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Your key to compliance excellence begins here with leading tax consultant in Gurgaon. Here is the Next post of #MCQ on concept-based practical professional knowledge on ICDS-II Valuation of Inventories in a unique manner to be self-answered by participants. The detailed answers to these MCQs shall be posted the next day for the self-assessment of the participants.

MCQ 95.1: M/s ABC India 15 a partnership firm trading in goods has a turnover of Rs 1500 Crores and was dissolved on 15th January 2016 because of the death of a partner. For calculation of Tax under the Income Tax Act for the previous year 2015-16. closing stock of Inventory Needs to be valued at

A. Cost

B. Net Realizable Value

C. A or B whichever is lower

D. None of the Above

MCQ 95.2: If in the above case, the firm was dissolved on 15th April 2017, what would be the value of closing stock as per the Income Tax Act?

A. Cost

B. Net Realizable Value

C. A or B whichever is lower

D. None of the Above.

Answer MCQ Self Challenge #0095

This post of MCQ is on provisions relating to ICDS-II Valuation of Inventory

Answer MCQ 95.1:

C. A or B whichever is lower

Practical Analysis for MCQ 95.1

• As per section 145A of the Income Tax Act (wet 1 April 1999), the method of Valuation of purchase and sale of goods and inventory for the purpose of determining Income from Business and Profession shall be according to the method regularly followed by the assessee.
• As firms follow generally Accepted Accounting Policies inventory is Valued at Cost or Net realisable value whichever is lower. Therefore for tax Purposes, inventory will be valued at cost or net realizable value on dissolution of the firm

Answer MCQ 95.2:

B. Met Realizable Value

Practical Analysis for MCQ 95.2:

• Section 145(A) of the Income Tax Act has been amended to w.e.f 1st April 2017 to be in line with Income Computation and Disclosure Standards notified under 145(2) with effect from 1 April 2017

As per ICDS-II

• Inventories shall be valued at cost, or net realizable value, whichever is lower
• In case of dissolution, whether business is continued or not, the cost of inventories shall be valued at the net realizable value

On the basis of the above analysis Answer to MCQ 95.1; C. A or B whichever is lower and Answer to MCQ 95,2: B. Net Realizable Value

Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by a change of facts, and the answer may be different Please do not treat this as a professional opinion; you can definitely have your own opinion.)

Sincere Regards

CA Sanjay Kumar Agrawal

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