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Ind-AS 2: Inventories (Valuation) (Out of Scope (Financial Instruments …
Ind-AS 2: Inventories (Valuation)
Basic Objectives
To ensure correct profits are calculated
Meaning of Inventory
Held for Sale
Finished Goods
Held in Process of Production
WIP
Held for Consumption in Production
Raw Materials and Supplies
Supplies = Consumable stores like loose tools
Specific loose tools = Ind-As 16
General supplies = Ind-AS 2
Out of Scope
Financial Instruments
Ind-AS 109
Deferred Tax Assets
Ind-AS 12
Biological Assets
Ind-AS 41
Agricultural Produces after Harvests, Mineral Oils etc.
Construction WIP held by Contractors
Ind-AS 115
Commodity broker/traders valuing their
inventory (shares, deb.) at cost or FV whichever is lower
Valuation Rule
Cost or NRV
whichever is lower
Based on
prudence
Valuation loss = Cost - NRV
Transfer to SOPL
Fall in value of inventory
Defective/Damaged goods
Obsolete goods
Less demand
Cost of Inventory
Direct Material
Purchase price
Reduce rebates/trade discounts
Non-refundable Duties
Transportation
Loading/Unloading
Transit Insurance
Exp. directly related to purchase
Conversion Cost
Direct Wages
From factory records
payroll sheets or wage payment register
Factory OH
Fixed OH
Calculate fixed OH per unit (recovery rate p.u.)
Fixed OH/Normal output or Actual output whichever is higher
Recovered OH = Recovery rate p.u. x Actual output
Include in cost
Unrecovered OH = (Normal output - Actual output) x Recovery rate p.u.
Write off in SOPL
Variable OH
No. of units actually produced x Variable OH per unit
Other Cost
Any other exp. for production of goods
NRV
Expected Selling Price - Expected Cost of Disposal
Expected cost of disposal =Admin OH + Selling OH
Goods are directly sold from factory
Valuation Process
Finished Goods
Cost or NRV
whichever is lower
Raw Materials & Supplies
At cost only
If finished goods are valued at NRV
raw material is valued at cost or NRV
whichever is lower
WIP
Cost or NRV
whichever is lower
NRV = Selling price - Expected cost to sell -
Expected cost of conversion
Contract Sale Units
Cost or Contract Price
whichever is lower
Valued at NRV if there is possibility of
cancellation of contract due to decline in market prices
Costing Formulas
Historical Cost Based
FIFO
Weighted Average
Non-Historical Cost Based
Retail Value
Cost = Retail Value of stock - % of estimated gross margin
Standard Cost
Specific Identification Method
For expensive items (jewellery)
Reversal of Valuation Loss
Cannot exceed amount of actual loss written off earlier
Disclosure
Accounting policy including
costing formula
Amount of valuation loss written off
Reversal of valuation loss
Classification of stock
Inventories carried at FV
Extra
Inventory purchased on credit
Calculate PV of purchase price.
It will be taken as cost of inventory.
Remaining amount will be unwinding cost
and written off in SOPL
Treatment of Joint Cost
Allocation of joint cost over joint products in ratio
of sales value at separation point
Treatment of By-Product
Reduce NRV of by-product from total joint cost
before allocation of joint cost
Cost of Services by Service Providers
Cost of professionals directly involved in providing services
Directly attributable exp.
All other exp. to be written off in SOPL
Exclusions from Cost
Admin. OH
Selling OH
Distribution OH
Storage Cost
Abnormal Loss
Borrowing Cost
unless it is allowed by Ind-AS 23
Any other exp. not
directtly related with production of goods
FV vs. NRV
FV is expected selling price
at the time of sale (based on
market conditions)
NRV is expected price from sale in
ordinary course of business
(fixed by owner of goods)
Abnormal wastes are excluded from cost and recognized as exp in SOPL