AS 2 Valuation of Inventories

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This discussion clarifies the accounting treatment of inventories under AS 2, defining them as assets held for sale, in production, or materials for consumption. It specifically addresses whether packing materials like LDPE/HDPE covers, threads, seals, and ink should be treated as inventory or expenses. Generally, materials consumed directly in production, even if not sold, should be maintained as stock. However, minor consumables used for packing are often treated as direct expenses rather than inventory.

Nagaraj

Nagaraj (Querist)

15 July 2023 Hi,

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.

Does packing materials such as LDPE and HDPE covers should we maintain inventory details and shown as closing stock?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

15 July 2023 Yes, you should maintain inventory details and shown as closing stock

Nagaraj

Nagaraj (Querist)

17 July 2023 When we are not selling packing material how can we shown under purchases and maintain stock?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

17 July 2023 It's a material consumed in the production process you have to maintain stock

Nagaraj

Nagaraj (Querist)

18 July 2023 if in that case. how to record purchase entry of packing material is it expenses or purchases?
if packing material purchases we are not selling that. if it is expenses do we maintain stock of expenses.
thread, seal, ink, tapes it is also used for packing purposes hence do we need to maintain these inventory details and show in the Balance sheet

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

18 July 2023 Such minor items treat it as expenses.

Nagaraj

Nagaraj (Querist)

19 July 2023 Sorry sir i m troubling much
you have not shared your views on this

if in that case. how to record purchase entry of packing material is it expenses or purchases?
if packing material purchases we are not selling that. if it is expenses do we maintain stock of expenses?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

19 July 2023 It's purchase of packing materials.
It's expenses no need to maintain stock.

Nagaraj

Nagaraj (Querist)

21 July 2023 Still not clear, when we are not selling (covers) should we shown as purcashe or expenses?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

21 July 2023 It's only purchase of packing materials for which ITC can be claimed.
It's direct production consumables.

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