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Indian Accounting Standard (IndAS 2) – Inventories

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Indian Accounting Standard (IndAS 2) – Inventories, Summary for Indian Accounting Standard – 2. In this INDAs Youc an Find complete details for Inventories like – Details or Meaning of Inventory, Details for Cost of Inventories, Example for FIFO and Weighted Average Cost Method, Circumstances under which inventories are write down to net realisable value, Reversal of written down of inventories, DISCLOSURE IN NOTES TO ACCOUNTS etc. Now you can scroll down below n check more details for Indian Accounting Standard (IndAS 2) – Inventories

Indian Accounting Standard (IndAS 2) – Inventories

IndAS 2 Inventories

Inventory

  • Held for sale in ordinary course of business
  • In the process of production for such sales or
  • In the form of material or supplies to be consumed in the production process or in the rendering of services.

Cost of Inventories

COST OF INVENTORY = COST OF PURCHASE + COST OF CONVERSION + OTHER COST

1) Cost of Purchase

  • Computed on the basis of formula except specifically indentified.
  • Formula allowed is FIFO or weighted average cost method.
  • Standard Cost Method also allowed by IAS considering the market conditions of item.

EXAMPLE: FIFO AND WEIGHTED AVERAGE COST METHOD

Date of Purchase Quantity Purchased Rate per KG TOTAL COST Quantity Cleared for production Balance of Quantity in STOCK
02/04/2XXX 100 100 10000 90 10
05/05/2XXX 200 90 18000 150 60
06/07/2XXX 250 95 23750 300 10
07/09/2XXX 400 80 32000 250 160
08/12/2XXX 100 110 11000 150 110
03/02/2XXX 150 125 18750 200 60
Closing Quantity Rate Applicable Closing Stock Value
Valuation as per FIFO Method

(Price of Last purchase taken for valuation)

60 125 7500
Valuation as per Weighted Avg. Cost Method

(Rate applicable to valuation = Total Purchase Cost/Total Qty Purchase)

60 94.5833 5675

2) Cost of Conversion

  • Comprises of direct costs including variable and fixed overhead.
  • Fixed overhead is charged on the basis of normal capacity of the unit. Normal capacity means average capacity.

3) Other Costs

  • Included in the cost of inventory to the extent that they are incurred in bringing the inventories to their present location and conditions. If specifically identified to a particular product then should be included in the cost of that particular product.
  • Financing cost, if inventory purchased on deferred payment method then the difference between normal price and price charged by vendor under credit terms shall be shown under finance expense as interest cost and therefore will not form part of inventory valuation.

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Circumstances under which inventories are write down to net realisable value

  • In case of damaged inventories
  • Inventory partially/ completely obsolete
  • In case where finished goods in which raw material will be used is expected to be sold below cost of finished goods.

Reversal of written down of inventories

  • Separate disclosure should be given under notes to accounts for reversal of write down if realisable value of inventories increased above cost.

DISCLOSURE IN NOTES TO ACCOUNTS

  1. Policies adopted in measuring inventories.
  2. Value of inventories in different head of inventories like Raw material, WIP, Finished goods and stores and tools.
  3. Written down of inventories in current year and their reversal.
  4. Inventories pledged as security.
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