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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:.

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accounting standard 2

Accounting Standard: 2

Valuation of Inventories

accounting standard 2 deals with
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
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.
slide6

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.
slide7

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).

slide8
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
Disclosure:
  • Accounting policy adopted in measuring including cost formula used,
  • Total carrying cost of inventories and its classification.