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Preamble In the case of conflict between the provisions of Income Tax Act, 1961 („the Act‟) and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent.
Scope
Definitions 2(2) Words and expressions used and not defined in this Income Computation and Disclosure Standard but defined in the Income Tax Act shall have the meanings assigned to them in that Act.
Measurement
Cost of Inventories
Costs of Purchase
Costs of Services
Costs of Conversion 8. The allocation of fixed production overheads for the purpose of their inclusion in the costs of conversion shall be based on the normal capacity of the production facilities. Normal capacity shall be the production expected to be achieved on an average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production shall be used when it approximates to normal capacity. The amount of fixed production overheads allocated to each unit of production shall not be increased as a consequence of low production or idle plant. Unallocated overheads shall be recognized as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed production overheads allocated to each unit of production is decreased so that inventories are not measured above the cost. Variable production overheads shall be assigned to each unit of production on the basis of the actual use of the production facilities. 9. Where a production process results in more than one product being produced simultaneously and the costs of conversion of each product are not separately identifiable, the costs shall be allocated between the products on a rational and consistent basis. Where by-products, scrap or waste material are immaterial, they shall be measured at net realizable value and this value shall be deducted from the cost of the main product.
Other Costs 11. Interest and other borrowing costs shall not be included in the costs of inventories, unless they meet the criteria for recognition of interest as a component of the cost as specified in the Income Computation and Disclosure Standard on borrowing costs.
Exclusions from the Cost of Inventories
Cost Formulae 14. „Specific identification of cost‟ means specific costs are attributed to identified items of inventory. 15. Where there are a large numbers of items of inventory which are ordinarily interchangeable, specific identification of costs shall not be made.
First –in First-out and Weighted Average Cost Formula 17. The FIFO formula assumes that the items of inventory which were purchased or produced first are consumed or sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average shall be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances.
Retail Method
Net Realisable Value 20. Net realizable value shall be based on the most reliable evidence available at the time of valuation. The estimates of net realizable value shall also take into consideration the purpose for which the inventory is held. The estimates shall take into consideration fluctuations of price or cost directly relating to events occurring after the end of previous year to the extent that such events confirm the conditions existing on the last day of the previous year. 21. Materials and other supplies held for use in the production of inventories shall not be written down below the cost, where the finished products in which they shall be incorporated are expected to be sold at or above the cost. Where there has been a decline in the price of materials and it is estimated that the cost of finished products will exceed the net realizable value, the value of materials shall be written down to net realizable value which shall be the replacement cost of such materials.
Value of Opening Inventory
Change of Method of Valuation of Inventory
Dissolution of Partnership Firm
Transitional Provisions
Disclosure
Press Release of CBDT for Draft ICDS
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CBDT Notification 32/2015-Income Computation and Disclosure-Standards Click Here >>
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