Inland Revenue Act 2017 · As enacted · Part I
42. Cost of trading stock and other fungible assets
Official English translation. The Sinhala text prevails. Open the official Sinhala text, official PDF on documents.gov.lk
Official translationFrom Department of Government Printing, unchanged
For the purposes of determining the cost of trading stock of a business of a person –
no amount shall be included in respect of the repair, improvement or depreciation of depreciable assets;
and
subject to the provisions of paragraph (a), the absorption-cost method shall be used for amounts that are eligible to be included in the cost of the trading stock (section 37).
The owner of an asset referred to in subsection (3) may elect for the cost of the asset to be determined according to the first-in-first-out method or the average-cost method.
Once chosen, the method shall only be changed with the written permission of the Commissioner-General.
The assets referred to in subsection (2) shall be trading stock or any other type of asset specified by the
Commissioner-General that are fungible and not readily identifiable.
In this section –
“absorption-cost method” means the generally accepted accounting principle under which the cost of trading stock is the sum of direct asset costs, direct labour costs and factory overhead costs;
“average-cost method” means the generally accepted accounting principle under which costs are allocated to fungible assets of a particular type owned by a person based on a weighted average cost of all assets of that type owned by the person;
“direct labour costs” means expenditure incurred by a person on labour that directly relates to the production of trading stock;
“direct asset costs” means expenditure incurred by a person in acquiring any asset or assets that constitutes trading stock or becomes an integral part of trading stock produced;
“factory overhead costs” means all expenditure incurred by a person in producing trading stock except direct labour and direct asset costs; and
“first-in-first-out method” means the generally accepted accounting principle under which costs are allocated to a fungible asset of a particular type owned by a person based on the assumption that assets of that type owned by the person are realised in the order of their acquisition.