Ind AS 2

Inventory
Packaging Material Cost

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 Inventory Storage
Cost

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 Production Facility
Dr. Abhishek Ranga FCMA
, CPA, MBA, Ph.D (Finance)
Employee Salary

Production Department Finance Department

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
Transportation Cost

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 • 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.
Arvind
Mills Annual Report
• All other inventories of stores, consumables,
project material at site are valued at cost. The
2014-15
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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
Disclosure
a. Accounting policy adopted in measuring including cost formula used,
b. Total carrying cost of inventories and its classification.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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
Dr. Abhishek Ranga FCMA
, CPA, MBA, Ph.D (Finance)
 • Fixed production overhead – Rs. 10 lakhs
Numerical 1 per annum
• Installed capacity – 1 lakh units per
Points to remember annum
• Normal capacity utilization -97%
Cost should be calculated at
normal capacity Calculate cost per unit in the following
cases –
Over or under capacity 1. If actual capacity utilization is – 95 %
utilization will impact cost of
inventory 2. If actual capacity utilization is – 97 %
3. If actual capacity utilization is – 99 %

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 Numerical 2
Points to a. If, cost of inventory (WIP) is Rs. 100 per unit.
remember b. Fair value (FG) is Rs. 130 per unit.
Ins AS -2, unlike AS-2 c. Estimated cost of completion (WIP to FG) is Rs.
(IGAAP) addresses 10 per unit.
reversal of NRV to cost
At what value inventory should be reported?

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 Cost of inventory (FG) is Rs. 100 per unit.

Numerical 3 At what value inventory should be reported in the

following cases?
Points to remember
Ins AS -2, unlike AS-2 Case 1: If Fair value Fair value (FG) is Rs. 130 per
(IGAAP) addresses unit.
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
Dr. Abhishek Ranga FCMA
, CPA, MBA, Ph.D (Finance)
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

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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.

Numerical 4 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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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
Numerical 5 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?

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 If for an inventory –
Cost – Rs. 100 (FG)
SP – 90 (due to change in economic
environment)
a. At what value inventory will be reported?
Numerical 6
b. Assume there is a reversal in the economic
environment, and SP is Rs. 110. At what
value inventory will be reported?

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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
Numerical 7 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?

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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
Numerical 8 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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
 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
Numerical 9 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?

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
Inventory
disclosures by
listed firms

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
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.
Dr. Abhishek Ranga FCMA
, CPA, MBA, Ph.D (Finance)
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).
Dr. Abhishek Ranga FCMA
, CPA, MBA, Ph.D (Finance)
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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
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

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
3. Bajaj Auto 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.
Dr. Abhishek Ranga FCMA
, CPA, MBA, Ph.D (Finance)
….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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
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)

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
Arvind 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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)
4. Arvind 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.

Dr. Abhishek Ranga FCMA

, CPA, MBA, Ph.D (Finance)