'valuation of inventory [Resolved]

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 July 2010 sir,a manufacturing company has head office at one place and it has different plants situated in different locations , where related accounts and HR departments are also there to carryon the operation there smoothly.

Sir , my question is whether the administration coct like salary paid to accounts and Hr personnel should be added with the cost for the purpose of 'valuation of inventory , as per AS 2".
Not : the client has contention that it is a part of direct cost , and had the plant been not there , it could have been avoided.

Pl. guide me with suitable supportings.

With Regards
Surya Kumar Pani

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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01 July 2010 The cost of inventories should comprise all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their
present location and condition.

Exclusions from the Cost of Inventories
13. In determining the cost of inventories in accordance with paragraph 6,
it is appropriate to exclude certain costs and recognise them as expenses in
the period in which they are incurred. Examples of such costs are:
(a) abnormal amounts ofwastedmaterials, labour, or other production
costs;
(b) storage costs, unless those costs are necessary in the production
process prior to a further production stage;
(c) administrative overheads that do not contribute to bringing the
inventories to their present location and condition; and
(d) selling and distribution costs

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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01 July 2010 Salary paid to Account department and HR department are that administrative overheads which are not contribute to bringing the inventories to their present location and condition.
Hence these are excluded.