Inventories of merchandise, raw materials, supplies, goods-in-process, finished goods and by-products shall be evaluated on the basis of actual cost. Where the cost is higher than the net realizable value, the taxpayer may take the net realizable value as the basis of evaluation. A loss on a decline in the net realizable value of the inventories is allowed to be the cost of goods sold. In case the cost is not ascertainable or the net realizable value is not derivable by reasonable anticipation, the competent tax authority shall determine it on the basis of expert opinion or by appraisal.
Net realizable value as provided in the preceding paragraph refers to the expected net margin from the sales under regular operation.
Cost as provided in Paragraph 1 may be calculated by using the specific identification method, first-in first-out method, weighted average method, moving average method, or other methods approved by the competent authority in accordance with the categories or characteristics of an inventory.

Actual cost means the price paid for the acquisition of an asset and includes not only the purchase price paid at the time of acquisition but also all necessary expenses incidental to acquisition or incurred in making it fit for use in the operation of business. Where an asset is manufactured or constructed instead of purchased, the cost includes materials, labor and all expenses incurred in the designing, manufacturing, construction and installation necessary to make it fit for use in the operation of business. In the case of an asset brought forward at the beginning of a period, the cost means the original inventory price.
The expenses incurred in the expansion, replacement, improvement, or repair of any asset as a result of which the asset’s value or efficiency is increased may, to the extent of such increase, be added to the balance of the actual cost for computation.

Market value means the current price prevailing at the locality concerned on the day of making the final report of the account.

The cost of goods-in-transit is the cost standing at the time of commencement of transit, and the market value thereof is the market value prevailing at the place of destination.
Evaluation of a by-product shall be in accordance with Article 44 of this Act where the cost thereof is verifiable and on the basis of the market value after the deduction of selling expenses where the cost thereof is not available.

Article 44 of this Act shall apply mutatis mutandis in the evaluation of short-term investments in valuable securities. Where the market value of such a security at the close of a financial period has been subject to violent fluctuations, the average price during the immediately preceding month may be taken as the market value on the day of making the final report of the account.

Accounts receivable and notes receivable shall be evaluated at their respective amounts less deductions for estimated allowance for bad debts.
Allowance for bad debts as set forth in the preceding Paragraph shall be estimated and set aside in an amount not exceeding 1% of the amount of outstanding balance of the accounts receivable and the notes receivable, or of the amount of outstanding balance of credits in the case of a financial institution.
Where the percentage of bad debt losses actually incurred and declarable by a profit-seeking enterprise under the law exceeds the percentage specified in the preceding Paragraph, the allowance for such bad debts may be estimated and set aside in an amount not exceeding the average of the percentages of actual bad debts declarable by the said profit-seeking enterprise under the law in the preceding three years.
For a profit-seeking enterprise, if it is found in the following year that the amount of all ascertained losses in bad debts differs from that of the estimated losses, an adjustment shall be made in the estimation of losses in bad debts for the current year to conform to the allowable percentage.
Under any of the following circumstances, an account receivable or note receivable or any other item of uncollected credit may be deemed as an ascertained bad debts loss:
1. Where the outstanding amount is wholly or partially uncollectible by reason of insolvency, dodging of the debtor, compromise or adjudication of bankruptcy, or any other cause;
2. Where the outstanding amount has been past due for a period over two years during which neither the principal nor the interest accrued thereon has been paid despite demands made therefor.
If the outstanding amount as set forth in the preceding Paragraph is collected after being written off as a loss, the amount actually collected shall be deemed as a profit for the year in which it is collected.

Buildings, fixtures, appurtenant equipment, vessels, machinery, tools, apparatus, appliances and other fixed assets shall be evaluated at cost less prescribed depreciation.

Fixed assets must be depreciated by using the straight-line method, fixed percentage on diminishing book value method, sum-of-years`-digits method, production method, working-hour method or other depreciation methods approved by the competent authority. Where the assets belong to different categories, the calculation of depreciation may combine the computations based on the respective categories.
The service life of various kinds of fixed assets shall be such as is prescribed in the Table of Service Life of Fixed Assets; however, the service life of equipment installed to prevent water pollution or air pollution may be shortened to two years.
In the computation of depreciation of each kind of fixed asset, the service life of such fixed assets shall not be shorter than the minimum years of service life specified in the said table unless special permission has been granted by the Government to adopt the shortening as an incentive.

When a passenger sedan that was newly purchased by a profit-seeking enterprise is depreciated in accordance with paragraph 1 of the preceding Article, its actual cost shall not exceed the criteria prescribed by the MOF.
If the aforementioned passenger sedan, after having been used, is sold, destroyed, or scrapped, its income or loss shall also be computed on the basis of its remaining value, which is calculated in accordance with the formal method of depreciation prescribed by this Act.

Where the actual cost of a fixed asset is increased or decreased after a number of years of use, the depreciation of the asset shall be computed on the basis of the cost after such increase or decrease at the prescribed rate of depreciation with the remaining portion of the service life taken as its service life.

Where the fixed assets have at the time of acquisition been used for a number of years, the depreciation thereof shall be computed at the prescribed rate of depreciation with the remaining portion of the service life taken as their service life.
Where it is foreseeable at the time of acquisition of the fixed assets that they will not have the normal length of service life on account of certain special circumstances, the actual useful years may, upon presentation of documentary evidence, be taken as their service life for computing depreciation at the prescribed rate.

For valuation of depreciable fixed assets, accumulated depreciation accounts must be established and presented as deductions of the respective assets. The depreciation of fixed assets must be presented on an annual basis.
When the depreciation of fixed assets is computed, the salvage value must be estimated. The balance after deduction of the salvage value shall be used as the basis for the computation.
If a fixed asset continues to be used after the expiration of its service life, the asset can continue to be depreciated using the salvage value thereof.

Where a fixed asset has reached the full period of its prescribed useful years but the accumulation of depreciation thereof has not amounted to the cost thereof, depreciation at the original rate may be made until full depreciation has been made.

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If a fixed asset which has been completely depreciated is destroyed or becomes obsolete at the expiration of its useful years, the difference, if any, of the residual value previously estimated over the proceeds from the sale of scraps may be charged to loss for the current year. In case the proceeds from sale of scraps exceed the residual value previously estimated, the difference shall be charged to income of the current year.
Where fixed assets are destroyed or become obsolete on account of specific reasons at any time before the end of their prescribed service life, their undepreciated value may, upon submission of reliable documentary evidence, be charged to loss for the proper fiscal year; however, proceeds from the sale of scraps, if any, shall be considered as income.

Where the service life of a fixed assets is less than two years, the cost thereof may be considered as a loss for the fiscal year in which such assets are acquired, manufactured or constructed, and annual depreciation thereof is not required.

Depletion assets shall be valued on the basis of the value left over after deducting from the cost of such assets the depletion charge for each period. Computation of the depletion charge may be made according to one of the following formulas, provided that whichever is used shall not be changed afterwards:
1. Computing at the close of the business year the depletion charge deductible for the current year on the basis of the quantity actually exploited within the current year multiplied by the estimated unit depletion charge, which is worked out by dividing the cost of the depletion assets against the quantity exploitable;
2. Setting aside annually from the gross amount of proceeds realized from the exploitation or sale of products the depletion charge according to the Table of Depletion Assets, provided that the depletion charge set aside annually shall not exceed fifty percent of the amount of gain derived in the current year from the assets before deducting therefrom the depletion charge and that the aggregation of such depletion charge shall in no case exceed the cost of the assets. In the case of depletion assets that produce petroleum or natural gas, a depletion in the amount of 27.5 percent of the gross amount of proceeds realized from the sale of the production in the current year may be set aside therefrom annually till the assets are completely exhausted, provided that the depletion charge set aside annually shall not exceed fifty percent of the amount of gain derived in the current year from the assets before deducting therefrom the depletion charge.

Business rights, trademarks, copyrights, patents and other franchises are assets only if they are acquired by purchase.
Such intangible assets as referred to in the preceding paragraph shall be valued at cost less the amount amortized for each period.
The cost of intangible assets shall be amortized in equal annual installments in accordance with the following prescribed number of years of amortization, however, where an intangible asset after acquisition cannot be amortized according to the prescribed number of years of amortization on account of specific reasons, an application stating the reasons therefore may be submitted to the competent tax authority for permission to amortize in a different manner:
1. Amortization of business rights shall be based on a period of ten years;
2. Amortization of copyrights shall be based on a period of fifteen years;
3. Amortization of trademarks, patents and all other franchises may be based on the number of years of enjoyment of such rights after acquisition.

In the case of a 25 percent rise in prices, the fixed assets, depletion assets and intangible assets as referred to in this Act may be revalued. Rules governing the conduction of asset revaluation and formulas of revaluation shall be separately prescribed by the Executive Yuan.

Deposits, loans, and bonds for long-term investment shall be valued at the current value computed based on the period for amortization. Computation of the current value shall be based on the interest at the contracted rate if the debt is interest bearing, or at the average interest rate prevailing among local banks on deposits at a fixed term of one year if the debt is not interest bearing.
When the debt as referred to in the preceding paragraph is recovered at maturity, the portion of interest accruing from the value in excess of the current value shall be considered as profit for the year in which the debt is recovered.

Where a long-term investment is made to hold all the shares or more than one-half of the shares of a subsidiary enterprise, it shall be valued on the basis of the total net worth of the assets of such an enterprise or a part thereof proportionate to the amount of shares held. Where the amount of long-term investment in any other enterprise is less than one-half of its total amount of capital, the valuation of the investment shall be based on the cost.

Evaluation of prepaid expenses shall be based on the portion of the amount remaining within the unexpired period; the inventory of supplies must be valued on the basis of the portion of the amount covering the unused supplies; evaluation of other deferred expenses must be based on the non-amortized amount.
Expenditures of a profit-seeking enterprise incurred during the organizational period must be recorded as current expenses. The term "organizational period" means the period from the preparatory stage to the starting date of the business that commences to generate significant revenue.
The expenses defrayed for the issue of corporate bonds and the difference resulting from the discounted issuance of corporate bonds against their face value shall, where a definite period of amortization is provided for, be amortized in installments according to such a period.

In the case of dissolution, discontinuance, merger or consolidation, spin-off, acquisition, or transfer of ownership of a profit-seeking enterprise, evaluation of its assets shall be based on the current value or the actual price at which the transaction is made.

A taxpayer shall keep an inventory stating therein the quantity, unit, unit price, total price and location of all his assets as well as whether the price indicates the cost, the current value or the appraised value.
Where a taxpayer fails to produce reliable documentary evidence in support of the valuation of his assets, the competent tax authority may directly determine the value of such assets by way of appraisement.