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CMA Final · Direct Tax Laws and International Taxation · Income Computation and Disclosure Standards (ICDS)

Under the Income-tax Act, 2025, a trader holds shares of an unlisted company as inventory (stock-in-trade). Its actual cost initially recognised is ₹8,00,000 and its net realisable value at the year end is ₹6,50,000. At what value should this inventory be taken in computing business income?

The inventory is valued at ₹8,00,000. Unlisted securities, or listed securities not regularly quoted, held as stock-in-trade are valued at actual cost initially recognised, so the fall in net realisable value is not recognised. Lower of cost and NRV applies only to other securities.

  1. A₹6,50,000, being the lower of cost and net realisable value
  2. B₹8,00,000, being the actual cost initially recognisedCorrect
  3. C₹7,25,000, being the average of cost and net realisable value
  4. D₹1,50,000, being the diminution in value

Explanation

Section 277(1)(iii) says inventory in the form of unlisted securities, or listed securities not regularly quoted, is valued at actual cost initially recognised. Net realisable value is therefore ignored. The ₹6,50,000 option wrongly applies the lower-of-cost-or-NRV rule that applies only to other securities.

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