As 2 valuation of inventory

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Querist : Anonymous

Querist : Anonymous (Querist)

04 May 2012 As per AS 2, treatment of Fixed OH in case of lower actual production as compare with normal capacity is as under.

Normal Capacity : Units 2000
Fixed OH : Rs. 500000
Actual Production : Units 1500
Sales : Units 1000
Closing Stock : Units 500

Fixed OH bifurcated in following manner.

Absorption Rate : 500000/2000 = Rs. 250

(A) Charge to Cost of Sales
= 1000*250 = 2500000

(B) Charge to Closing Stock
= 500*250 = 125000

(C) Under Recovery charge to P/L A/c
= 500*250 = 125000

QUESTION IS THAT HERE FIXED OH IS TAKEN IS BUDGETED OR IT WILL BE ACTUAL.

Amol S Joglekar

Amol S Joglekar (Expert)
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04 May 2012 While following AS 2, let us not mix budgetory / standard costing. The valuation has to be cost(Actual) or market (Actual) whiochever is LOWER.

Querist : Anonymous

Querist : Anonymous (Querist)

04 May 2012 Dear sir, I am talking about treatment of Fixed OH not general valuation which we all very well know.

Querist : Anonymous

Querist : Anonymous (Querist)

04 May 2012 Dear sir, I am talking about treatment of Fixed OH not general valuation which we all very well know.

So are you mean that it will be actual.???

Amol S Joglekar

Amol S Joglekar (Expert)
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04 May 2012 That is what I was trying to tell you... if you are into financial accounts.... actual cost is always the key factor. Need not get confused with BUDGET. The actual cost is 500k and the same is required to be accounted for.

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