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AS 2 - Valuation Of Inventories - Coggle Diagram
AS 2 - Valuation Of Inventories
AS-2 Inventories Definition
Assets Included
:
Held for sale (Finished goods)
In production process (Raw material, WIP)
For consumption in production/service (Materials, spares)
Exclusions
: Machinery not considered inventory.
Objectives of AS-2
Compute inventory cost.
Determine closing stock value for balance sheet until sold.
AS-2 Applicability Exceptions
Work in progress under construction/service contracts.
Financial instruments held as stock (shares, bonds).
Producer's inventories (livestock, agricultural products).
Inventory Measurement
Valued at lower of cost and net realizable value.
Valuation of Inventories: Key Points
Determine cost.
Determine net realizable value.
Compare cost and net realizable value.
Cost of Inventory Components
Cost of purchase (purchase price, duties, taxes, freight inward).
Cost of conversion (direct costs, fixed and variable overheads).
Other costs to current location/condition.
Exclusions from Inventory Valuation
Abnormal waste/material costs.
Storage costs (unless necessary for production).
Administrative overheads not contributing to inventory's current state.
Selling and distribution costs.
Cost Formulas for Inventory Calculation
Permitted
: Specific identification, FIFO, Weighted Average, Standard Costing.
Prohibited
: Base stock method, LIFO.
Disclosure Requirements under AS-2
Accounting policies for measuring inventories, including cost formula used.
Total carrying amount of inventory and classification appropriate to the enterprise.
Inventory Classification
Raw Materials, Work in Progress, Finished Goods, Stores and Spares, Loose Tools.
Net Realizable Value (NRV)
Estimated selling price on the ordinary course of business
(Less) The estimated cost of completion
(Less) The estimated cost necessary to make the sale
NRV Measurement Conditions
Damaged or obsolete items.
Decline in selling price.
Increased completion or sale costs.