XXXX
R.B. Day (613) 995-1723
December 22, 1983
Dear XXXX
We are writing in reply to your letter of November 14, 1983 wherein you requested our views as to whether a taxpayer may use one method of inventory valuation for financial statement purposes and a different inventory valuation method for income tax reporting purposes.
As we understand it your client, a corporation carrying on a professional engineering practice, will be required to value, for income tax purpose, work-in-progress inventory at the end of its 1983 taxation year by virtue of new subsection 10(6) of the Income Tax Act (the Act).
In previous taxation years, the corporation made elections under paragraph 34(1)(d) of the Act such that no amount would be included in the work-in-progress inventory at the end of any given taxation year.
The corporation values, and will continue to value, work-in-progress inventory for financial statement purposes on the basis of net realizable value. However, commencing with the 1983 taxation year, the corporation will value its inventory, for income tax purposes, at the lower of cost or fair market value pursuant to subsection 10(1) of the Act and section 1801 of the Income Tax Regulations (the Regulations).
Since the corporation is adopting an inventory valuation method, for income tax purposes, that is in accord with the requirements of the Act and Regulations, it is our view that this method is acceptable to the Department regardless of the method used for financial statements purposes. The method thus adopted should, however, continue to be used on a consistent basis in subsequent taxation years.
For further discussion on this subject, we draw your attention to the comments in our Interpretation Bulletin IT-473 , dated March 17, 1991, entitled "Inventory Valuation".
Yours truly,
for Director Corporate Rulings Division Legislation Branch