Valuation of Inventories

Presented By: Ikjot Dhawan Roll No: 10HM11

Accounting Standard-2 deals with :
y Determination of value at which inventories are

carried in Balance Sheet, y Ascertainment of cost, y Situation in which carrying cost of inventories is written below cost.

Inventories are assets :
y held for sale in ordinary course of business, y in the process of production for such sale, or y in the form of material or supplies to be

consumed in the production process or in the rendering of services.

Measurement of Inventories :
Inventories should be valued at lower of Cost and Net realizable value.
Net realization value = Estimated selling price Estimated cost necessary to make sale.

Cost of Inventories :
These include all cost of purchase, cost of conversion and other cost incurred in bringing the inventories to their present location and condition. But does not include: i) abnormal amount, ii) storage cost unless necessary in the production, iii) administrative overhead, iv) selling and distribution cost.

Cost of Purchase :
It consist of the purchase price including duties and taxes, freight inwards and other expenditure directly attributable to the acquisition.

Cost of conversion :
It include cost directly related to unit of production i.e. direct wages, variable overhead, allocable fixed overhead.

Disclosure :
y Accounting policy adopted in measuring

including cost formula used, y Total carrying cost of inventories and its classification.


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