Valuation of Inventory

VALUATION OF INVENTORIES
Meaning of Inventories Inventories consist of assets held : a) For Sale ( finished goods ) b) In the process of production for such sale ( raw material and W.I.P ) c) In the form of materials or supplies to be consumed in the production process ( stores, spares, consumables, raw material)

VALUATION OF INVENTORIES
Applicability AS-2 does not cover the following 1. W.I.P arising under construction contract 2. W.I.P arising in case of service providers 3. Shares, debentures, bonds and other financial instruments held as stock-in-trade

VALUATION OF INVENTORIES
Valuation Policy Inventories are valued at lower of cost or net realisable value NRV means estimated selling price minus estimated costs of completion and costs necessary to make the sale

VALUATION OF INVENTORIES
Cost of Inventory includes--1. Cost of purchase 2. Cost of conversion 3. Other costs incurred in bringing the inventories to their present location and condition

VALUATION OF INVENTORIES
1. Exclusion of certain costs Abnormal amounts of wasted materials, labour, other production costs Storage cost Administrative overhead Selling and distribution cost Interest and borrowing cost

2. 3. 4. 5.

VALUATION OF INVENTORIES
Cost Formulas 1. Specific Identification Method :-It means directly linking the cost with specific item of inventories 2. FIFO ( First In First Out ) or Weighted Average cost Where specific identification method is not applicable the cost of inventories is valued by either of the above two formulas.