AS-2 v/s IAS-2

Last updated: 14 July 2007

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This article provides a comparative study of AS-2 (Valuation of Inventories) and IAS-2 (Inventories). Both standards require inventories, including finished goods and work-in-progress, to be valued at the lower of cost and net realizable value (NRV). However, they differ in how they handle the valuation of raw materials and the reversal of write-downs due to subsequent increases in NRV.

Comparative Study of
AS-2 (Valuation of Inventories) and IAS-2 (Inventories)

[By Mr. Anshul Rastogi,
Meerut, Uttar Pradesh,
Student of CA Final]

June 12, 2007

AS-2	IAS-2
Valuation of Finished Goods and Work In Progress (WIP) Inventories in form of finished goods and WIP are required to be stated at the lower of cost and net realisable value (NRV). Valuation of Raw Material Case-I Raw materials are stated at the cost, if NRV of finished goods in which such raw materials used are more than the cost of finished goods. Case-II Raw materials are stated at the lower of cost of raw materials and NRV of finished goods, if NRV of finished goods in which such raw materials used are less than the cost of finished goods. Reversal arising from an increase in NRV in the subsequent period is not allowed.	Valuation of All Inventories All inventories are required to be stated at the lower of cost and NRV. Increase in the NRV in subsequent period Reversals arising from an increase in NRV are recognised as a reduction of the inventories expense in the period in which they occur.
Cost of Inventories Cost of inventories includes purchase cost (material, labour, overhead) and other cost to bring inventory to its present location and conditions. Interest and other borrowing costs are usually not include in cost of inventories.	Purchase of inventories on deferred settlement terms, excess payment over normal price is to be accounted as interest over the life of financing. Foreign exchange fluctuation gain or loss can not be considered as inventories cost.
Cost Formulas For items that are not ordinarily interchangeable, specific cost are segregated to the individual items of inventories. For other items cost are segregated on First in First out and weighted average basis.	SAME AS AS-2 (VALUATION OF INVENTORIES)
Disclosures: Accounting Policies and cost formula adopting for valuation of inventories. Total carrying amount and classification of inventories.	Additional Disclosures: Carrying amount of inventories carried at NRV. Reversal of write-down and circumstances that lead to write-down. Inventories pledged as security for liabilities.

[Note: Author will not be responsible for any loss of action to any one, in any manner. It is suggested that to avoid any doubt reader should cross check all the fact with original Accounting Standard (AS) and International Accounting Standard (IAS).]