Scribd Logo
Upload

Welcome to Scribd!

  • 23 views

    Tax Audit Series 6 - S. Nos 14-15

    Uploaded by

    Hanumantha Reddy Bellary
    This document discusses the reporting requirements under Section 14 and 15 of Form 3CD related to inventory valuation and conversion of capital assets to stock. Section 14 requires disclosure of the inventory valuation method used and any deviations from the prescribed method along with its impact. Section 15 requires details of any capital assets converted to stock during the year including description, acquisition date, cost and conversion amount. The document provides guidance on complying with the relevant accounting standards for appropriate treatment and disclosures.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Tax Audit Series 6 - S. Nos 14-15

    Uploaded by

    Hanumantha Reddy Bellary
    23 views4 pages
    This document discusses the reporting requirements under Section 14 and 15 of Form 3CD related to inventory valuation and conversion of capital assets to stock. Section 14 requires disclosure of the inventory valuation method used and any deviations from the prescribed method along with its impact. Section 15 requires details of any capital assets converted to stock during the year including description, acquisition date, cost and conversion amount. The document provides guidance on complying with the relevant accounting standards for appropriate treatment and disclosures.

    Original Description:

    aaaaaaaaaaaaaaaaaaaaaaaaaaaa bbbbbbbb ccccccccccc

    Original Title

    Tax Audit Series 6 - S. Nos 14-15

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses the reporting requirements under Section 14 and 15 of Form 3CD related to inventory valuation and conversion of capital assets to stock. Section 14 requires disclosure of the inventory valuation method used and any deviations from the prescribed method along with its impact. Section 15 requires details of any capital assets converted to stock during the year including description, acquisition date, cost and conversion amount. The document provides guidance on complying with the relevant accounting standards for appropriate treatment and disclosures.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    23 views4 pages

    Tax Audit Series 6 - S. Nos 14-15

    Uploaded by

    Hanumantha Reddy Bellary
    This document discusses the reporting requirements under Section 14 and 15 of Form 3CD related to inventory valuation and conversion of capital assets to stock. Section 14 requires disclosure of the inventory valuation method used and any deviations from the prescribed method along with its impact. Section 15 requires details of any capital assets converted to stock during the year including description, acquisition date, cost and conversion amount. The document provides guidance on complying with the relevant accounting standards for appropriate treatment and disclosures.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Tax Audit Series 6 – S. Nos.

    14-15

    CA. PRAMOD JAIN


    B. COM (H), FCA, FCS, FCMA, LL.B, DISA, MIMA

    Namaste

    In series - 6 we would discuss the Particulars of Form 3CD – Part B – S. Nos. 14 &
    15.

    Serial no. 14

    14 (a) - Method of valuation of closing stock employed in the previous year

    14(b) - In case of deviation from the method of valuation prescribed under


    section 145A, and the effect thereof on the profit or loss, please furnish

    S. No. Particulars Increase in Profit Decrease in Profit


    (in Rs.) (in Rs.)

    This clause requires reporting regarding method of valuation of inventory followed by


    the assesse and details of deviation, if any, from the method of valuation prescribed
    u/s 145A and its impact on profit and loss account. It is pertinent to note that section
    145A has been amended with retrospective effect from AY 2017-18 to give effect to
    ICDS.

    • The amended section 145A w.e.f. AY 2017-18 covers not only goods but
    services and securities too.
    • Closing stock should be valued at lower of actual cost or net realisable value
    (NRV), where costs are ascertained on the basis of Specific Identification
    Method, FIFO or weighted average cost method.
    • In case of conversion of capital asset into stock is valued at FMV, the same
    should also be stated. Accordingly the audit report in Form 3CB should be
    qualified for not complying with AS 2.
    • Inventories include:
    • Finished goods being held for sale in course of ordinary business
    • Stock-in-trade being Goods held for resale
    • Raw material
    • Work in progress
    • Maintenance supplies
    • Consumables

    1|Page
    Tax Audit Series – 6 – S. No. 14 -15
    Tax Audit Series 6 – S. Nos. 14-15

    CA. PRAMOD JAIN


    B. COM (H), FCA, FCS, FCMA, LL.B, DISA, MIMA

    • Loose tools (not including machine spares forming part of Property


    Plant & Equipment)
    • Cost of inventory includes
    • Cost of purchase includes purchase price including duties and taxes
    (except those recoverable from taxing authorities as per AS 2),
    freight inwards etc. trade discounts, rebates etc. are deducted from
    cost.
    • Cost of conversion includes directly attributable costs such as labour
    cost
    • Other costs incurred in bringing the inventory to present location.
    • Tax auditor has to ensure that method of valuation of stock is appropriate and
    complies with principles of AS 2 and the same method is used consistently. If
    the method is inappropriate then suitable qualification in Tax audit report is
    required in Form 3CB.
    • Section 145A allows change in method of valuation in following conditions
    • Adoption of different policy is required by statute or
    • Change would result in better presentation of financial statements of
    the enterprise
    • As the enterprise follows exclusive method of accounting as per AS 2 (which
    is different from section 145A, which requires inclusive system to be
    followed), hence the following adjustments are required:
    • Any tax, duty or fee paid on purchase or inventory should be added to
    the cost of purchase or cost of inventory respectively.
    • Any tax, duty or fee paid on sale of goods or services should be added
    to sales.
    • It is pertinent to note that as per ICAI Tax Audit Guidance Note (Revised
    2014) Para 28, the impact of following exclusive method or inclusive method
    would not impact profits of the entity.
    • Disclosure in S. No. 14(b) may be made as under (as suggested by ICAI
    Guidance Note of the example taken therein) shown below for VAT (to be
    replaced by GST):

    S. Particulars Increase Decrease


    No. in profit in profit
    (Rs) (Rs)

    2|Page
    Tax Audit Series – 6 – S. No. 14 -15
    Tax Audit Series 6 – S. Nos. 14-15

    CA. PRAMOD JAIN


    B. COM (H), FCA, FCS, FCMA, LL.B, DISA, MIMA

    1 Increase in Opening Stock on inclusion of VAT 30000

    2 Increase in Purchases on inclusion of VAT 90000

    3 Increase in Sales on inclusion of VAT 90000

    4 Increase in Closing Stock on inclusion of VAT 60000

    5 VAT paid on sales 90000

    6 VAT credit availed on cost of goods sold 60000

    210000 210000

    • Depending on the case, a note may be given by the assesse that ‘Inventories are
    not inclusive of taxes and duties; however there is nil impact on profits due to
    the same as per the computation made’.

    Serial No. 15:

    Details of capital asset converted into stock in trade in prescribed format:

    i. Reporting requirement:
    a. Arises in the previous year in which such conversion takes place
    and the same should not be postponed till the year of sale.

    ii. Description of Capital Asset:


    a. Provide the detail of Capital asset such as shares, securities, land,
    building, plant, machinery, etc. along with section 32 (if depreciable
    asset) that deals with depreciation and classifies the different assets
    based on their nature.

    iii. Date of Acquisition:


    a. Verify the period of holding of asset to ensure whether it is long
    term or Short term asset and for this purpose verify the date of
    purchase of assets from assesse.

    iv. Cost of Acquisition:

    3|Page
    Tax Audit Series – 6 – S. No. 14 -15
    Tax Audit Series 6 – S. Nos. 14-15

    CA. PRAMOD JAIN


    B. COM (H), FCA, FCS, FCMA, LL.B, DISA, MIMA

    a. Verify cost of acquisition of capital asset (as per AS 10, if


    applicable), from purchase invoice and cash/bank account, Fixed
    asset register, etc.

    v. Amount:
    a. Verify the amount at which it is converted in to Stock-in Trade (as
    per AS 2).
    b. In case the conversion is not done at cost but at FMV, appropriate
    disclosure is to be made at clause 14 (a) of Form 3CD that
    inventories on conversion of capital asset into stock is valued at
    FMV. Accordingly the audit report in Form 3CB should be
    qualified for not complying with AS 2.

    Note: Conversion of capital asset in the form of Land & Building into stock in trade
    attracts provisions of Sec 50C of the Act by virtue of s. 45(2) read with s. 2(47)(iv).
    Hence, reporting requirement is also required under clause 17 of Form 3CD.

    I hope this document is of use to you. I thank Ms. Diksha Plaha & Ms. Ria Agarwal in
    assisting me to compile this part of the series. Your suggestions and comments would
    be highly appreciated

    Best Regards

    CA. Pramod Jain


    [email protected]
    +91 9811073867

    4|Page
    Tax Audit Series – 6 – S. No. 14 -15

    You might also like