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AS –
2
VALUATION OF INVENTORY Objective: 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.
Scope:
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
industries.
Definitions:
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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