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Accounting Standard - 2 Valuation of Inventory By: CA. ANIL MATHUR Jaipur

Accounting Standard - 2 Valuation of Inventory By: CA. ANIL MATHUR Jaipur . Objective Determination of the value at which inventory to be carried in financial statements. Such determination is untill the related revenue is recognised.

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Accounting Standard - 2 Valuation of Inventory By: CA. ANIL MATHUR Jaipur

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  1. Accounting Standard - 2 Valuation of Inventory By: CA. ANIL MATHUR Jaipur
  2. Objective Determination of the value at which inventory to be carried in financial statements. Such determination is untill the related revenue is recognised. Determination of such value including ascertainment of cost of inventory and any write down thereof to NRV.
  3. Does not apply on the following inventory: WIP of construction contracts / other directly related service contracts WIP in ordinary course of business of service providers Fin. Instruments (FI) held as stock-in-trade Producers’ inventories of livestock, mineral, and agricultural etc. to the extent measured at NRV as per practice in the Industry
  4. What are Inventories They are assets : held for sale in ordinary course of business in the process of production for such sale in the form of materials or supplies to be consumed in the production process or renderingservices
  5. Measurement of Inventoriesat lower of Cost & Net Realisable Value (NRV) Cost of Inventories Aggregate cost of Purchase + Conversion + Other (other cost being incurred in bringing inventories to present location and condition) Net Realisable Value Estimated selling price less the estimated cost of completion and to make the sale
  6. Cost Formulas Specific Identification Method for items not ordinarily interchangeable & goods produced for specific projects FIFO/Weighted Average Method for all other cases Techniques such as Standard Cost or Retail Method may be used for convenience if approximates the actual cost
  7. Cost of ConversionOverhead Allocation Fixed OHs: on basis of normal production capacity amount of allocation is not increased as a consequence of low production or idle plant amount of allocation is decreased in case of abnormally high production Variable OHs: on basis of actual use of production facility Joint Products & By-products: when cost not separately identifiable, allocation on rational & consistent basis e.g. on sale value
  8. Allocation of Fixed Production OverheadDep. on P&M/Factory Building Rs. 1,00,000/-Staff/Administrative Expenses Rs. 1,00,000/-Total Rs. 2,00,000/- Normal Production 1,00,000 UnitsAllocation of Fixed Production Overhead Rs. 2 Per Unit
  9.  Comparison of cost with NRV Reversal of written down of value
  10. In Case of Manufacturing Organization Valuation of raw material when there is decline in the price of raw material Effect of decline in NRV of Finished Goods on valuation of raw material Raw Material Cost NRV A 10 8 B 15 15 C 6 6 D 4 4 35 33 Overhead 15 15 Cost of 50 48 Finished Goods NRV of Valuation of Finished Raw Goods Material 55 10 48 8 40 8
  11. Exclusions from Cost Interest and other borrowing cost Abnormal amount of wasted material, labour, expenses Storage cost unless they are necessary in production process Administrative overheads not contributing in bringing inventories to present condition Selling & Distribution cost
  12. Disclosure Accounting policies adopted in measuring inventories including cost formula Total carrying amount of inventories and its classification appropriate to the enterprise Common classifications are : # Raw Material # WIP # Finished Goods # Stores & Spares # Loose Tools
  13. Comparison of IND AS-2 with AS-2
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