ACCOUNTING STANDARD 2

VALUATION OF INVENTORIES
PRESENTED
T. R. ANAND
 INVENTORIES HAVE BEEN DEFINED AS
ASSETS HELD:

For sale in the ordiniary course of business

In the process of production for such sale
In the form of materials or supplies to be
cosumed in production process or in rendering
of servies
 VALUATION
• Finished goods and wip at cost or net
realizable value which ever is less
• Raw material consumed and other stores are
valued at cost.
 SCOPE AND COVERAGE
• DEALS WITH ALL INVENTORIES EXCEPT
– WIP arising under construction contracts
– WIP arising in course of business of service
provider.
– Shares and debentures and other financial
instrument held as stock in trade.
– Producers’ inventories of livestock, agriculture and
forest products, and mineral oil, ores and gases as
they are always recorded at net realisable value.
 VALUATION POLICY
• Raw materials etc : raw materials,
maintenances supplies, loose tools required
for use in process of production are valued at
COST.
• Finished goods and WIP : inventories held for
sale and WIP are valued at COST OF
INVENTORIES or NET REALIZABLE VALUE which
ever is lower.
 NET RELISABLE VALUE
• NET RELISABLE VALUE: NRV represents the
estimated selling price in the ordinary course
of business minus the aggregate of estimated
cost of completion of WIP inventory and the
estimated cost necessary to make the sale.
• Estimate of NRV are based on the most reliable
evidence available at the time of estimates,
regarding the amount the inventories are
expected to realise when sold.
 COST OF INVENTORIES
• Cost of Purchase : consist of purchase price including duties
and taxes other than those recoverable subsequently like
CENVAT. Cost of purchase represents final invoice value,
carriage and octroi minus recoverable taxes.
• Cost of conversion includes labour and overheads.
• Other cost includes cost incurred to get the materials to
the present location and condition. Eg. Cost of designing
etc.
• Exclusion of certain cost : abnormal losses, cost of storage,
administration exp and selling and distribution exp.
 COST FORMULAS
• Specific identification
• FIFO
• LIFO
• WAC