Inventory Valuation

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Navin (Querist)
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15 October 2009 Suppose, I have a contract to sell 10000 units of goods @ Rs.40/- p.u. and at the year end I have 6000 units in hand. Now at what price I will value the inventory at the year end if its Cost is Rs.45 and its market NRV is Rs.44.
What will be your answer if contract price becomes Rs.46/-?

CA Anisha Ray

CA Anisha Ray (Expert)
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16 October 2009 The valuation of the inventory will have to be done on the principle of Cost or Market value whichever is lower.

So , in the above case U will have to value it at Rs.44/- ( which is the lower of the two).But since the contract price is 40, U will have to value it at 40, since there is no reason to show it at 44 as Sales price is already fixed and U will not get anything more than 40.

However, if the contract price escalates to 46/- U will value it at Rs. 44 taking the above rule.

In short, Principle of Conservatism to be followed, do not account for Profit but account for losses.

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Navin

Navin (Querist)
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16 October 2009 Thnks 4 ur reply
the treatment also seems 2 b prudent as per AS 1

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