Recognition of Loss on Inventory Valuation

According to Article 44 and 46, inventories of merchandise, raw materials, supplies, goods-in-process, finished goods and by-products shall be evaluated on the basis of cost. Where the cost is higher than the market value, the taxpayer may take the market value as the basis of evaluation. In case the cost or the market value is not ascertainable, the local collection authority-in-charge shall determine it on the basis of expert opinion or by appraisal; Market value means the current price prevailing at the locality concerned on the day of making final report of the account. Therefore, in case of recognizing loss on inventory valuation when filing business income tax, fact that the cost is higher than the market value and local market value of inventory on date of filing final report must be provided.

Regarding market value or current price prevailing at the locality, collection authority-in-charge shall determine on the basis as follows:

1. Market value recorded in newspaper or magazine.

2. Cost of last purchase of imported raw material in normal quantity at year end shall be used as market value. For finished goods for export, selling price of last sale in normal quantity at year end shall be used as market value. In case no selling price could be provided, price on last L/C or order sheet received from overseas of the year shall be used as market value.

3. Market value of imported goods shall be calculated based on duty paying value of the same period.

4. Value assessment report provided by independent real estate appraiser or notary office. 5. Other objective market values.

6. In case different market values are provided, the average shall be used as market price of current month.