• They are guidelines or.• GAAP are not a fixed set of rules. the American Institute of Certified Public Accountants. a group of objectives and conventions that have evolved over time to govern how financial statements are prepared and presented. . and the Securities and Exchange Commission provide guidance about acceptable accounting practices. more precisely. • The Financial Accounting Standards Board.

presentation and disclosure of accounting transactions in the financial statements of an organization. . • Changes were catalyzed by the changing business environment across the globe. measurement.Accounting Standards • Basic rules for preparing and presenting the financial statements kept on changing with the passage of time. • The Institute of Chartered Accountants of India (ICAI) issues the Accounting Standards in India . • Facilitates the disclosure of financial information which is important but not required to be disclosed by law . treatment. • It suggests the rules for recognition.

• (b) in the process of production for such sale. • (c) in the form of materials or supplies to be consumed in.Valuation Of Inventories • Definition: • Inventories are assets: • (a) held for sale in the ordinary course of business. .

Objective • 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 recognized. . • This Statement deals with the determination of such value. including the ascertainment of cost of inventories and any write-down thereof to net realizable value.

• the production process or in the rendering of services. • estimated costs necessary to make the sale. • course of business less the estimated costs of completion. . • Net realizable value is the estimated selling price in the ordinary. • 3 This Standard has been revised and titled as „Construction Contracts‟.

• Inventories do not include the specific machinery spares which can be used only in connection with an item of fixed asset. taxes). • The cost of inventories should comprise all costs of purchase (duties. • Valuation should be based on lower of „cost‟ and „net realizable value‟. cost of conversion (direct lab our) and other costs .

the inventories are to be valued as per FIFO or weighted average cost.• Net realizable value means the estimated price that can be realized in ordinary course of business as reduced by the cost of completion and cost of sale. . • Generally.

• Raw Materials – FIFO. . • Work In Progress & Finished Goods –Material cost + appropriate share of production overheads & excise duty.Notes to Inventories • Stores & Spare parts are stated at cost (through weighted average).

000 Variable Overheads Rs.000 units per annum but the actual production for the year was 5. Calculate the value of the inventory stock. Mungeri Lal Laboratories was 5000 units of stock at the end of the year. 2 Direct Labour Rs. “Jadoo”.000 • The normal capacity of the plant is to produce 10. 3 Fixed Overheads Rs. Jadoo‟s costing details are provided below: • • • • • Raw material Rs. 20.000 units.Illustration • Dr. 10.1 Direct Expenses Rs. The stock with Dr. Mungeri Lal Laboratories Limited produces a chemical. .

000 units) • • • • • Variable Overheads • Total per Unit .000 units) 2 10 (Rs.000 for 5. 20.000 for 10. 10.Solution Particulars Raw material Direct Labour Direct Expenses Fixed Overhead Cost per unit 2 1 3 2 (Rs.

. • b) the total carrying amount of inventories and its classification appropriate to the enterprise.Disclosure • The financial statements should disclose: • (a) the accounting policies adopted in measuring inventories. including the cost formula used.

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