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

Under the Income-tax Act, 2025, Kiran Traders holds inventory of shares of an unlisted company, purchased at an actual cost of Rs 6,00,000. At year end the net realisable value of these shares is Rs 4,50,000. At what value should this inventory be taken for computing business income?

The inventory is valued at Rs 6,00,000. Unlisted securities held as inventory are valued at actual cost initially recognised under the ICDS, so the lower-of-cost-or-NRV rule does not apply and the fall in net realisable value is ignored.

  1. ARs 4,50,000, being the net realisable value
  2. BRs 6,00,000, being the actual cost initially recognisedCorrect
  3. CRs 5,25,000, being the average of cost and net realisable value
  4. DRs 1,50,000, being the fall in value

Explanation

Inventory in the form of securities not listed on a recognised stock exchange is valued at actual cost initially recognised as per the ICDS, not at the lower of cost and net realisable value. So the value is Rs 6,00,000. The Rs 4,50,000 option wrongly applies the general lower-of-cost-or-NRV rule.

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