ACCOUNTING STANDARD:2

VALUATIONS OF INVENTORIES

WHY WE NEED TO VALUE INVENTORIES ‡ ‡ ‡ Major determinant of net income Asset on the Balance Sheet of companies Direct impact on the financial statements of the company .

‡Storage costs ‡Administrative overheads ‡Selling cost .INVENTORY COST ‡ Called capitalized inventory cost ‡ Comprises all cost of: ‡Purchase ‡Cost of conversion ‡Cost in bringing inventory to present location and condition ‡ Except: ‡Abnormal costs incurred.

. ‡ This is limited to the amount of original write down.DECLINE IN INVENTORY VALUE ‡ Inventories are measured at the lower of cost and Net Realizable Value ‡Net Realizable Value: Estimated selling price less Estimated cost necessary to make the sale ‡ If value of inventory declines below the cost carried on the BS(historical cost) then we record write down (loss) ‡Reversal is required for a subsequent increase in the value of inventory written down.

INVENTORY ACCOUNTING METHODS .

. Weighted Average 3. FIFO (First In First Out) 2. ‡Business must use the same cost formula for all inventories having similar nature and use. ‡For different types of inventories.‡ AS 2 allows for 3 methods 1. different methods can be used. Specific Identification ‡ FIFO and Weighted Average (LIFO under GAAP) are cost flow assumptions whereas Specific identification is not.

5 6437.5 FIFO Total Cost Gross Margin 7440 6460 .125 7462.Total Units Sold: SP\Unit Revenue 20 695 13900 Units 1-Feb 5-Feb Cost\unit 12 370 20 375 Weighted Average Method: Average Cost Total Cost Gross Margin 373.

DISCLOSURES In financial statements Other information y y .

.

.

conversion and other cost to bring it to the current location and condition Use FIFO or Weighted Average Same as AS-2 Accounted at Cost Cost of Inventories Same as AS-2 Same as AS-2 Cost Formulas Same as AS-2 Use LIFO. FIFO or Weighted Average .Particulars AS-2 IAS-2 US GAAP Measurement of WIP and Finished Goods Accounted at Cost or Net Realiseable value. whichever is lower Includes costs of purchases.

WINDOW DRESSING ‡Meaning ‡Titan case .

800 2. To. To. Gross Profit c/f 650 200 8. Rs.000 1. Rs. Rs.TRADING ACCOUNT Particulars FIFO Amt.250 6.800 8.800 . Particulars FIFO Amt.800 To. To. Opening Stock Purchases Direct Wages Freight Expenses 4.000 2.200 400 200 By Sales By Closing Stock 6. WA Amt. To.200 400 200 4. WA Amt.250 7.800 2.250 7. Rs.

Postage&Stamps To.350 900 . Net Profit 700 250 1. Audit Fees By Gross Profit b/f By Interest Received To. Salary To. Rs. Rs. 650 700 WA Amt.350 900 1. Rs. Rs. 200 700 To. 500 50 100 Particulars FIFO Amt.PROFIT AND LOSS ACCOUNT Particulars FIFO Amt. 500 50 100 WA Amt.

100 700 800 1.BALANCE SHEET Liabilities FIFO Amt. Rs.500 700 Capital (+) Net Profit O/S salaries Bills Payable Bank Loan Creditors Land & Building Investment Plant Stock Debtors Cash at bank Cash in hand 17. 7.600 17.300 2.250 700 1.500 700 WA Amt.200 500 300 Assets FIFO Amt. Rs.150 . 14.200 950 4.600 17. 7.200 500 300 WA Amt. Rs.200 950 4.300 1. 14.800 700 1.150 17. Rs.100 250 800 1.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.