Ind AS 2

• The stock of Raw Material, Work-in-progress,

Stock in trade and finished goods has been
valued at the lower of cost and net realizable
value. Cost is measured on actual average for
Arvind Mills the year and includes cost of materials and
cost of conversion.
(2015,
• All other inventories of stores, consumables,
Annual project material at site are valued at cost. The
stock of waste is valued at market price. Excise
Report) duty wherever applicable is provided on
finished goods lying within the factory and
bonded warehouse at the end of the year.
Ind AS 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.

Inventory is an asset:
• 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,

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
a. Accounting policy adopted in measuring including cost formula used,
b. Total carrying cost of inventories and its classification.
 Over or under capacity
Cost should be calculated
utilization will impact
at normal capacity
cost of inventory

Ins AS -2, unlike AS-2

Deferred Settlement
(IGAAP) addresses
Terms
reversal of NRV to cost

Important Points
 • Fixed production overhead – Rs. 10
lakhs per annum
Numerical 1 • Installed capacity – 1 lakh units per
annum
Points to remember • Normal capacity utilization -97%

Cost should be calculated at Calculate cost per unit in the following

normal capacity cases –
1. If actual capacity utilization is – 95 %
Over or under capacity utilization
will impact cost of inventory 2. If actual capacity utilization is – 97 %
3. If actual capacity utilization is – 99 %
 Numerical 2 a. If, cost of inventory (WIP) is Rs. 100 per unit.
b. Fair value (FG) is Rs. 130 per unit.
Points to remember
c. Estimated cost of completion (WIP to FG) is Rs.
10 per unit.
Ins AS -2, unlike AS-2
(IGAAP) addresses
reversal of NRV to cost At what value inventory should be reported?
 Cost of inventory (FG) is Rs. 100 per unit.

At what value inventory should be reported in the

Numerical 3 following cases?
Points to remember
Case 1: If Fair value Fair value (FG) is Rs. 130 per unit.
Ins AS -2, unlike AS-2
(IGAAP) addresses reversal
of NRV to cost Case 2: If Fair value Fair value (FG) is Rs. 90 per unit.

Case 3: If Fair value Fair value (FG) is Rs. 90 per unit,

but you have a contract to supply FG to a client at Rs.
110 per unit
Important Points:

• Cost should be calculated at normal capacity

• Over or under capacity utilization will impact cost of inventory

• Ins AS -2, unlike AS-2 (IGAAP) addresses reversal of NRV to cost

• Deferred Settlement Terms

Numerical 3:
X Ltd. Has 100 switchboards in stock at the balance sheet date, March 31, 2017. The
switchboards are valued at NRV since their cost is very high (Rs. 110 per switchboard).

X Ltd. Has entered into an agreement on March 28, 2017 to sell 60 switchboards at Rs.
50 on April 5, 2017.

Remaining 40 switchboards are expected to be sold in the following month when the
price is expected to be at Rs. 48 each.

The sales price of these switchboards as on March 31, 2017 was Rs. 45 each.

Determine the value of stock at March 31, 2017.

Numerical 4:

In a production process, normal waste is 5% of input. 5000 MT of input were put in

the process resulting in wastage of 300 MT. Cost per unit of input is Rs. 1,000, the
entire quantity of waste is on stock at the year end.

If waste has NIL realisable value, what is the cost per unit (MT) of output?
Numerical 5:

If for an inventory –

Cost – Rs. 100 (FG)

SP – 90 (due to change in economic environment)

a. At what value inventory will be reported?

b. Assume there is a reversal in the economic environment, and SP is Rs. 110. At what value
inventory will be reported?
Numerical 6:

A trader, XYZ, in a normal circumstances provides a credit period of 28 days. For one of its
product – X, sales price is Rs. 50 per unit.

ABC Ltd. has entered into an agreement with XYZ for a supply of 1000 units of X at a price of Rs.
55. For this transaction ABC got a credit period of 42 days.

As per Ind AS 2 what accounting treatment you will provide to – 1000*55?

Numerical 7:

Pluto ltd. has a plant with the installed capacity and normal capacity to produce 6,00,000 units
and 5,00,000 units of a product per annum respectively. The expected fixed overhead is Rs.
15,00,000 per annum. Calculate fixed overhead per unit as per Ind AS 2 if actual production is
of 4,50,000 units in a year.
Numerical 8:

UA Ltd. purchased raw material at Rs. 400 per kg. Company does not sell raw material but uses
in production of finished goods. The finished goods in which raw material is used are expected
to be sold at below cost. At the end of the accounting year, company is having 10,000 kg of raw
material in inventory. As the company never sells the raw material, it does not know the selling
price of raw material and hence cannot calculate the realizable value of the raw material for
valuation of inventories at the end of the year. However, replacement cost of raw material is
Rs. 300 per kg. Calculate value of the inventory of raw material?
Inventory disclosures by listed firms
1. Amtek Auto

• Raw Materials, Stores, Spares & dies, Goods under process and Finished Goods are valued at
cost or Net Realizable Value, whichever is lower. Waste and Scrap is valued at Net Realizable
Value.
• Cost of inventories of Raw Materials and Stores and Spares is ascertained on FIFO Basis.
• Cost of goods under process and finished goods comprise of cost of materials, production
overhead and depreciation on plant and machinery. Cost of material for this purpose is
ascertained on First in First out basis.
• Provision for obsolescence in inventories is made, whenever required.
Amtek Auto

Cost of goods under process and finished goods comprise of cost of materials, production
overhead and depreciation on plant and machinery. Cost of material for this purpose is
ascertained on First in First out basis.

Comment:

Only material cost is as per FIFO not total cost which includes production overhead and
depreciation on plant and machinery. The allocation of production overheads may vary as per
the production (pls. refer to AS-2 for this).
 2. Ashok Leyland

• Inventories are valued at lower of cost and net realisable value; cost being ascertained on the
following basis:
• Stores, raw materials and components and work-in-progress: On monthly moving weighted
average basis.
• spares, consumable tools : weighted average basis
In respect of works-made components, cost includes applicable production overheads.
• Finished / trading goods: under absorption costing method.
• Cost includes taxes and duties and is net of eligible credits under CENVAT / VAT Schemes.
• Cost of patterns and dies is amortised over a period of five years.
• Surplus / obsolete / slow moving inventories are adequately provided for.
Ashok Leyland

Finished / trading goods: under absorption costing method.

Comment:

It is a requirement of Ind AS-2 and AS-2 (Only Absorption costing allowed not direct costing).
No comment of FIFO or WA

Auditor: Deloitte Haskins & Sells LLP

3 . B a j a j A u t o Ltd .

Cost of inventories have been computed to include all costs of purchases, cost of conversion
and other costs incurred in bringing the inventories to their present location and condition.

a) Finished stocks of vehicles, auto spare parts and work-in-progress are valued at cost or net
realisable value whichever is lower. Cost of finished stocks of vehicles lying in the factory
premises, branches, depots are valued inclusive of excise duty.

b) Stores, packing material and tools are valued at cost arrived at on weighted average basis or
net realisable value, whichever is lower.
….contd.

c) Raw materials and components are valued at cost arrived at on weighted average basis or
lower of cost and net realisable value, as circumstances demand. However, obsolete and slow
moving items are valued at cost or estimated realisable value whichever is lower.

d) Inventory of machinery spares and maintenance materials not being material are expensed
in the year of purchase. However, machinery spares forming key components specific to a
machinery and held as insurance spares are capitalised along with the cost of the asset.

e) Goods in transit are stated at actual cost incurred up to the date of Balance Sheet.
Finished stocks of vehicles, auto spare parts and work-in-progress are
valued at cost or net realisable value whichever is lower. Cost of finished
stocks of vehicles lying in the factory premises, branches, depots are
valued inclusive of excise duty.

Comment:

Cost formula not specified – FIFO or WA

Auditor: Dalal & Shah LLP (PWC Network Firm)

 4. Ar vind Mills (2015, Annual Report)

• The stock of Raw Material, Work-in-progress, Stock in trade and finished goods has been
valued at the lower of cost and net realizable value. Cost is measured on actual average for
the year and includes cost of materials and cost of conversion.

• All other inventories of stores, consumables, project material at site are valued at cost. The
stock of waste is valued at market price. Excise duty wherever applicable is provided on
finished goods lying within the factory and bonded warehouse at the end of the year.
Ar vind Mills (2015, Annual Report)

• The stock of Raw Material, Work-in-progress, Stock in trade and finished goods has been
valued at the lower of cost and net realizable value. Cost is measured on actual average for
the year and includes cost of materials and cost of conversion.

• All other inventories of stores, consumables, project material at site are valued at cost. The
stock of waste is valued at market price. Excise duty wherever applicable is provided on
finished goods lying within the factory and bonded warehouse at the end of the year.