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Valuation of Inventories - only for AY 2016-17

ICDS - 02 (old) - Rule - Old - ICDS for AY 2016-17 (Since withdrawn) - Other Direct Tax / Income Tax - ICDS - 02 (old) - ICDS II - Valuation of Inventories [See: Notification No. 32/2015 Dated:- 31-3-2015] [Came into force with effect from 1st day of April, 2015, i.e. from AY 2016-17] B. INCOME COMPUTATION AND DISCLOSURE STANDARD II RELATING TO VALUATION OF INVENTORIES Preamble This Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head " .....

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'construction contract' including directly related service contract which is dealt with by the Income Computation and Disclosure Standard on construction contracts; (b) Work-in-progress which is dealt with by other Income Computation and Disclosure Standard; (c) Shares, debentures and other financial instruments held as stock-in-trade which are dealt with by the Income Computation and Disclosure Standard on securities; (d) Producers' inventories of livestock, agriculture and forest p .....

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assets: (i) held for sale in the ordinary course of business; (ii) in the process of production for such sale; (iii) in the form of materials or supplies to be consumed in the production process or in the rendering of services. (b) "Net realisable value" is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (2) Words and expressions used and not defined in this Income Computation and .....

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es and taxes, freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates and other similar items shall be deducted in determining the costs of purchase. Costs of Services 6. The costs of services in the case of a service provider shall consist of labour and other costs of personnel directly engaged in providing the service including supervisory personnel and attributable overheads. Costs of Conversion 7. The costs of conversion of inventories shall i .....

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ixed 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 overhead .....

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e 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 realisable value and this value shall be deducted from the cost of the main product. Other Costs 10. Other costs shall be i .....

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with paragraphs 4 to paragraphs 11, the following costs shall be excluded and recognised as expenses of the period in which they are incurred, namely: - (a) Abnormal amounts of wasted materials, labour, or other production costs; (b) Storage costs, unless those costs are necessary in the production process prior to a further production stage; (c) Administrative overheads that do not contribute to bringing the inventories to their present location and condition; (d) Selling costs. Cost Formulae .....

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First-out and Weighted Average Cost Formula 16. Cost of inventories, other than the inventory dealt with in paragraph 13, shall be assigned by using the First-in First-out (FIFO), or weighted average cost formula. The formula used shall reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. 17. The FIFO formula assumes that the items of inventory which were purchased or produced first are consumed or sold first, .....

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18. Where it is impracticable to use the costing methods referred to in paragraph 16, the retail method can be used in the retail trade for measuring inventories of large number of rapidly changing items that have similar margins. The cost of the inventory is determined by reducing from the sales value of the inventory, the appropriate percentage gross margin. The percentage used takes into consideration inventory, which has been marked down to below its original selling price. Net Realisable Va .....

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t reliable evidence available at the time of valuation. The estimates of net realisable 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 sha .....

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