IND AS 2

IND AS 2 : INVENTORIES
(Corresponding to IAS 2)
OBJECTIVE
♦ Accounting treatment for inventories.
♦ Determination of cost to be recognised as asset until Related Revenue is
recognised.
♦ Guidance on Cost Formula used to assign cost.

DEFINITIONS
(1) Inventories are assets:
♦ Held for sale in ordinary course of business.
♦ In the process of production for such sale; or
♦ In the form of materials or supplies to be consumed in the production process or in the rendering of
services.
(2) Fair value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at measurement date.
(3) Net realisable value
Net amount that an entity expects to realise from sale of inventories in ordinary course of business less
cost of completion and estimated cost of sale.
NET REALISABLE VALUE
 ♦ Inventories are written down below cost to NRV consistent with the view that assets should not be
carried in excess of amount expected to be realised from their sale or use.
♦ Estimates of NRV consider the purpose for which the inventory is held and based on most reliable
evidence available at the time of estimate.

COST FORMULA
♦ Use of LIFO is
prohibited
♦ For interchangeable item
■ First in First Out
■ Weighted Average Cost Method
♦ For non-interchangeable item
■ Specific-Identification Method

RECOGNITION AS AN EXPENSE
When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period
in which the related revenue is recognised.
DISCLOSURE
♦ Accounting policies adopted in measuring inventories including cost formula.
♦ Total carrying amount with classification.
♦ Carrying amount of inventory carried at fair value less cost to sell.
♦ Amount of inventories recognised as expense.
♦ Amount of write down, reversal of write down and circumstances that led to reversal of write
down.
♦ Carrying amount of inventories pledged as security for liabilities.