Scribd
Upload
749 views10 pages

AS-2: Inventory Valuation Standards

Accounting Standard 2 deals with the valuation of inventories and outlines key considerations including determining the value of inventories on the balance sheet, ascertaining costs, and writing down inventory values below cost. Inventories are assets held for sale, in production, or as materials and supplies. Inventories should be valued at the lower of cost or net realizable value, with net realizable value defined as estimated selling price minus estimated costs to make the sale. Cost of inventories includes purchase costs, conversion costs, and other costs to bring inventories to their present state but excludes abnormal costs, storage costs unless needed for production, administrative overhead, and selling/distribution costs. The cost formula used, such as specific identification, FI

Uploaded by

Jasmita Banga
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPS, PDF, TXT or read online on Scribd
749 views10 pages

AS-2: Inventory Valuation Standards

Accounting Standard 2 deals with the valuation of inventories and outlines key considerations including determining the value of inventories on the balance sheet, ascertaining costs, and writing down inventory values below cost. Inventories are assets held for sale, in production, or as materials and supplies. Inventories should be valued at the lower of cost or net realizable value, with net realizable value defined as estimated selling price minus estimated costs to make the sale. Cost of inventories includes purchase costs, conversion costs, and other costs to bring inventories to their present state but excludes abnormal costs, storage costs unless needed for production, administrative overhead, and selling/distribution costs. The cost formula used, such as specific identification, FI

Uploaded by

Jasmita Banga
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPS, PDF, TXT or read online on Scribd
You are on page 1/ 10

Accounting Standard: 2

Valuation of Inventories

Accounting Standard-2 deals with:


Determination of value at which inventories are carried in B/S, Ascertainment of cost (manner), Situation in which carrying cost of inventories is written below cost.

Inventories are assets:


held for sale in ordinary course of business, in the process of production for such sale,or in the form of material or supplies to be consumed in the production process or in the rendering of services.

Measurement: Inventories should be valued


at lower of Cost and Net realisable value.

Net Realisable 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: Purchase price net of Trade discount, Rebate, etc. Cost of conversion: include cost directly related to unit of production i.e. direct wages, variable overhead, allocable fixed overhead.

Cost Formula: Valuation of inventories depend on cost formula used by entity: a) Specific identification method, b) FIFO, c) Weighted Average, d) Standard Cost, e) Retail Method (for retail trader).

Application of formula: Cost formula is applied in in item by item except one situation. Inventories are not written down below cost if finished product of such inventory are expected to be sold at above cost.

Disclosure:
Accounting policy adopted in measuring including cost formula used, Total carrying cost of inventories and its classification.

THANKS.

You might also like