AS-2: VALUATION OF INVENTORY

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-
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AS-10 PPE-
As-2 :
Inventory

Inventory meaning -
:

I -
FG & SIT - held for sale
-
2 WIP >
-
held in production process
3 RM material/supplies to be used in produ
>
- .
process
.

4 consumables & spaces

(other than those covered in As-10)
5
Packing Material
.

Non-applicability : -
will be explained with questions
valuation Cost
Inventory :· or NRV We lower

Ascertainment of cost of
Inventory
1.

Raw Material Wip/fG

>
- Lost of purchase >
-
Lost of Raw Material
less : Trade discounts
a rebates >
-
Conversion Lost
add : Non recoverable taxes Labour cost
Eg : -

add : cost incurred to

bring the inventory electricity cost
to its present location & condition
- machine
I vent

(AS-16)
add :
Borrowing cost
factory rent
-

>
- Normal Loss is considered as a
part of cost -
of (because ye market mein sab
inventory variable conversion fixed conversion
incur Karte ein so cost
collectively &
everyone
cost
increases the cost)
>
-
Abnormal loss is Debited to POL .

It is only incurred by us and not everyone)

 ariable conversion lost: -
I
employee
= 500 bats manufactured .

(30 days
15000/month (30days)
salary =

E30/bat
Salary /bat 15000/500
= = -

will be added to lost of per unit basis

It
inventory on .

fixed conversion lost

machine rent =
E500,000/month
normal
production (of bats) = 5000 bats

CASE I : CASE I : -

Actual produ = 4000 bats Actual production = 5000 bats

When .
Actual produ <Normal produ When , Actual production = Normal production

costlunit =
50000015000 : 100/bat cost/unit :
500000 15000 = 100/bat
() (NP)
,

400 , 000
Inventory cost 4000 X100
Inventory cost <000 X100 500
, 000
= = =
=
- #

PCL Dr. =
500 000 .
-
400 000
,
=
100000 PCL Dr. = 500000 500000
- = J
- - -

Competitor : -

competitor : -

500000/5000 =
100/ but 800000/5000 =
100/ bat

Chum competitorko nuhi badne

salte
adge vali
de Usko
advantage
.

de salete(

CASE III : -

Actual production = 6000 buts

When actual production > Normal production

cost/unit =
500000100000000 :
odbat 83 .

331bat
(AP)
Inventory cost = 6000 X83 33 .
=
0000 500
.000

PCL Dr . = 500000 -
500000 = O
-

competitor =
. 000/5000
500
=
100/bat
 Inclusion of in cost of inventory
storage cost : -

Generally
, storage cost is not included in the cost of
inventory
.
However
, if the cost
storage in
necessary to
bring the
inventory to its
present conditionit necessary
for production manufacture of
or
inventory then
part of cost of inventoryare

for of alcohol-
Egi-storage cost incurred
aging
Cost formula/Methods

Y
& - X

Historical cost Method Non-Historical Lost Method

N Ho
The purchase price/historical The
selling price (future price)
price) is considered for
cost of
calculating is considered
for calculating
closing stock
F
cost of
closing stock
,

Tbbb] -

Selling Profit Profit-cost

-

specific Fif LIFO SA WA

Identification -

similar
↓
Not similar
& Not ? Interchangeable ,

interchangeable I - 98

⑫
S
>
- 57

cannot be followed
as per As .
2
.

Towel
" >
- 53
closing stocks :

Branded Towels normal plain white towels

3
1 -
Rad Tow 1- 1004
2 >
-
Taj Tow 2 -
100U
.
3 >
Hilton Tow -
3 1004
Similar/Interchangeable
4) >
-
Marioft Tow a - 1004 Al

- 5 - 1001 FIFO/WAISA
Non-Interchangeable
fi

SpecificIdentification
 While materials in order to
purchasing identify cost
NOTE :- raw cost
the we
/
-
need to first
apply the concept of ascertainment of i . e.
e

Purch Price
-

Trade Discount & Rebates

- Non recoverable taxes
inv to location & condition
+ lost incurred to
bring present -

The above needs to be applied everytime we purchase varmaterial

while
At the
year
end ,
calculating thecost of
closing stock ,
we

require cost formulas .

These formulas are applied to all the

purchase prices that ascertained throughout the

year
we .

CALCULATION OF NET REALISABLE VALUE

I D I

Raw Material Work in

Progress finished Goods
↓
Price
selling 1000
-

Replacement Lost less Lost of

:
selling
=
10

is the NRY of Net Realisable value = 990

Raw Material .

complete >
FG

Price
selling 1000
I

less Lost of
Completion cost
:
selling I 10

NRV OF c -
NRY Of For 990
WIP

price
=
seeing
lost of
of the
I Not
For
selling
- -

-
cost of Completion

-
Based above should be valued at of cost
on the
,
Inventory lower OR NRV-

EXCEPTION : -
Raw material to be valued at cost irrespective of its NRY

Raw Material finished Goods

C= 100 NRV = 20 C = 1008 NRV = 1200

T

-
- (inco RM = 100)
X Value = 80X
= 1000 recovered
fully recovered
 When Raw Material is used in production of finished Goods and finished Goods
is > cost of finished ie the NRV of finished covers its
NRV
cost
,
goods
. .

goods totally
,

then the Raw Material will be valued at cost irrespective of its NRY
ofvow material
getting fully
because the cost is also .
recovered

CA foundation > CA final

C = 50000 NRV = 40000 C = 300000 NRY = 3000000

(includes foundation)
coo
↑
-

* Vale = 20000 X cost also

Value = 50000
↑

Value = 200
,000
T
&

VALUATION OF JOINT PRODUCT & BY PRODUCT

inded 3
Processing
Raw Material

↓ ↓
Tn a
Products
500000 1000000 "Split off
Il

im point
↓
goods 3
1500000 Joint Products :
sale value
.
-

value = units produced x splunit

fo
Lost will be apportioned in proportion of sale value
.

We want to calculate the cost of Joint Products

MAIN PRODUCT & BY PRODUCTS

Main
Raw Material Processing -
S
product
-
↓ ↓ By product
500000 1000000

im
1500000
.

cost of finished Goods

 Raw Material consumed
I
1 .
Entire cost of
will be allocated to the main product
.
2 Entire cost of conversion

will at NRV
By product be valued

Main Product Cost

1 .
Entire cost of Raw Material consumed
.
2 Entire cost of conversion
. less :
3 NRV of
by product
cost of main product

NON-APPLICABILITY

=> WIP of construction contracts .

(As-7)
=> WIP of service providers

rand
.

If holds shares debentures

- an
entity ,

other financial instruments as stock in

Nade .

(further discussed in AS-13) P

Producers of life stock
inventory
&
=> or
agriculture -
forest produce mineral oil ones & zhrs Labour
,
gases 15 men X -
, been
after
they have
M harvested/extraced and computers >
-
depr
their forward
sale is
guaranteed under a office space vent
>
-

contract or a
government guarantee
risk of faiture to
or
1) "
their is
negligible sell
. chunnu Invest to .

These can be valued at NRI.

In Is
Producer 8
Agriculture ya forest
produce ko Zerodha

F utpann Karne wale

.

agricultural crop ugaya/jadi buti ugaya Mineral

oils/oves/gases
↓ ↓

has been harvested

extract
Forward
contract
-egligible
~

Government
risk of
NRV
=

guarantee failure to sell

~
Producer has an
option to value such

inventory at its NRY·

 DISCLOSURES

for valuation of
>
-
Accounting policy adopted inventory
>
- cost Formula -
adopted
>
-
classification and
quantification of amount of
inventory
.