Accounting Standards Board (ASB)

&
AS-2 Valuation of Inventories

Prepared by-
Sagar Chachar
 Establishment
• Accounting Standards Board (ASB) was
constituted on 21st April,1977.
• To harmonise the accounting policies and
practices in India.
• Composition is broad based and ensures
participation of all interest groups in standard
setting process
 Objectives
Suggest areas in which Accounting Standards need to be
developed.
• To formulate Accounting Standards & to assist ICAI in
evolving and establishing Accounting Standards in India.
• To examine how far the relevant International Accounting
Standard can be adapted while formulating the
Accounting Standard and to adapt the same.
• To review, at regular intervals, the Accounting Standards
from the point of view of acceptance or changed
conditions, and, if necessary, revise the same.
• To provide, from time to time, interpretations and
guidance on Accounting Standards.
 Applicable to Whom?
Accounting Standards apply to any enterprise engaged in
commercial, industrial or business activities, irrespective of
whether it is profit oriented or it is established for charitable or
religious purposes.
Accounting Standards will not, however, apply to enterprises
only carrying on the activities which are not of commercial,
industrial or business nature, (e.g., an activity of collecting
donations and giving them to flood affected people).
 Even if a very small proportion of the activities of an enterprise
is considered to be commercial, industrial or business in nature,
the Accounting Standards would apply to all its activities
including those which are not commercial, industrial or
business in nature.
 Scope of ASB & ICAI
 If a Accounting Standard is found to be not in conformity with law, then
the financial statements should be prepared in conformity with such law.
 The Accounting Standards cannot and do not override the local
regulations which govern the preparation and presentation of financial
statements. However, the ICAI will determine the extent of disclosure to
be made in financial statements.
 Any limitations with regard to the applicability of a specific Accounting
Standard will be made clear. The date from which a particular Standard
will come into effect, as well as the class of enterprises to which it will
apply, will also be specified.
 The Institute will use its best endeavors to persuade the Government,
appropriate authorities, industrial and business community to adopt the
Accounting Standards in order to achieve uniformity in preparation and
presentation of financial statements.
 AS-2 Valuation of inventories
A primary issue in accounting for inventories is the
determination of the value at which inventories are
carried in the financial statements until the related
revenues are recognised.
This Standard deals with the determination of such
value, including the ascertainment of cost of
inventories.
 Inventories are assets:
(a) held for sale in the ordinary course of business;
(b) in the process of production for such sale; or
(c) in the form of materials or supplies to be consumed
in the production process or in the rendering of
services.
 Scope
This Standard should be applied in accounting for inventories
other than:
(a) work in progress arising under construction contracts,
including directly related service contracts.
(b) work in progress arising in the ordinary course of business of
service providers.
(c) shares, debentures and other financial instruments held as stk-
in-trade.
(d) producers' inventories of livestock, agricultural and forest
products, and mineral oils, ores and gases to the extent that
they are measured at net realisable value in accordance with
well established practices in those industries.
 Inventory cost
 The costs of purchase has purchase price including duties and taxes ,
freight inwards. Trade discounts, rebates, duty drawbacks are deducted in
determining the costs of purchase.
 Fixed production overheads & Variable production overhead costs
 Certain costs are excluded, examples of such costs are:
(a)Abnormal amounts of wasted materials, labour, or other production costs;
(b) Administrative overheads that do not contribute to bringing the
inventories to their present location and condition.
(d) Selling and distribution costs.
 The cost of inventories, should be assigned by using the first-in, first-out
(FIFO), or weighted average cost formula. The formula used should reflect
the fairest possible approximation to the cost incurred in bringing the
items of inventory to their present location and condition.
 Disclosure
The financial statements should disclose:
(a) the accounting policies adopted in measuring
inventories, including the cost formula used; and
(b) the total carrying amount of inventories and its
classification appropriate to the enterprise.
 Information about the carrying amounts held in different
classifications of inventories and the extent of the changes
in these assets is useful to financial statement users.
Common classifications of inventories are raw materials
and components, work in progress, finished goods, stores
and spares, and loose tools
Thank You