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AS – 2



This standard specifies the principals for valuing the inventory and determines the value at which inventories are carried in financial statements. Disclosure of these principles, adopted by the management, for the valuation of inventory is necessary.   


This Standard applies in accounting for inventories other than:

1. Work in progress arising under construction contracts, including directly

      related service contracts.

2. Work in progress arising in the ordinary course of business of service.

3.  Shares, debentures and other financial instruments held as stock-in-trade.

4. Producers’ inventories of livestock, agricultural and forest products, and

    mineral oils, ores and gases to the extent that they are measured at net

    realizable value in accordance with well established practices in those




Inventories are assets:

(a) held for sale in the ordinary course of business;

(b) In the process of production for such sale; or

(c) In the form of materials or supplies to be consumed in the production process or in the rendering of services.

Net realizable value:

It is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Recognition and measurement principles: 

Inventories should be valued at the lower of Cost and Net Realizable Value.

Measurement of cost:

Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method.

Following Cost formulas can be used:

a. FIFO.

b. Weighted average

Presentation and disclosure requirements:

The financial statement should disclose:

Accounting policies adopted in measuring inventories, cost formulas used and total carrying amount of inventories. Classification of the above into raw materials and components, work in progress, finished goods, stores and spares and loose tools appropriate to the company.





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