| Dear, |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Inventory value per unit in accordance with AS - 2 |
|
|
|
| |
|
|
|
|
|
|
|
| Particulars |
Value P.u |
|
|
| |
|
|
|
|
Rs. |
|
|
| |
|
|
|
|
|
|
|
| Raw material |
|
|
|
|
100.00 |
|
|
| Direct wages |
|
|
|
|
50.00 |
|
|
| Direct expenses |
|
|
|
|
2.00 |
|
|
| Production OH |
|
Rs.20,00,000 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 60% Variable (Rs.12,00,000/10,00,000 units) |
|
|
|
|
1.20 |
|
|
| |
|
|
|
|
|
|
|
| 40% Fixed (Rs.8,00,000/10,00,000 units) |
|
|
|
|
0.80 |
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
154.00 |
|
|
| |
|
|
|
|
|
|
|
| Closing Stock |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Cost of inventories |
|
|
|
|
|
| |
|
(200000 units * Rs.154 p.u) |
30800000 |
|
|
| |
|
|
|
|
|
|
|
| |
FMV |
|
|
|
? |
|
|
| |
|
|
|
|
|
|
|
| |
Whichever is lower. |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Consider the following example : |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Normal level of production 100000 units |
|
|
|
|
| Fixed production overheads Rs.500000 |
|
|
|
|
| Actual production |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Case 1 |
|
100000 units |
|
|
|
|
|
| Case 2 |
|
80000 units |
|
|
|
|
|
| Case 3 |
|
125000 units |
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Solution |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| FOH recovery rate = |
Total Fixed production OH |
|
|
|
|
|
| |
|
Normal Level of production |
|
|
|
| |
|
|
|
|
|
|
|
| |
|
(Rs.500000/100000 units) = Rs.5 p.u |
|
|
| |
|
|
|
|
|
|
|
| Note : In case of abnormally high production denominator of normal capacity |
|
|
| |
should be replaced by actual prodution. |
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Case |
Normal |
Recovery |
OH |
OH |
Total OH |
|
|
| |
Recovery |
rate |
Recoverd |
treated as |
|
|
|
| |
rate |
to be used |
|
period exp |
|
|
|
| |
|
as per AS -2 |
|
|
|
|
|
| |
Rs. |
Rs. |
Rs. |
Rs. |
Rs. |
|
|
| 1 |
5 |
5 |
500000 |
0 |
500000 |
|
|
| 2 |
5 |
5 |
400000 |
100000 |
500000 |
|
|
| 3 |
5 |
4 |
500000 |
0 |
500000 |
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
(500000/125000) = Rs.4 |
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Note : |
|
|
|
|
|
|
|
| Allocation of fixed prodution OH (As per AS-2) |
|
|
|
| |
|
|
|
|
|
|
|
| Fixed production OH are worked out on principles of absorbtion costing. |
|
|
| Allocation of fixed production OH for their inclusion in cost of conversion shuold be based on |
| normal capacity of production facilities. |
|
|
|
|
| |
|
|
|
|
|
|
|
| normal capacity is production expected to be achieved on an average over a no.of periods or |
| seasons under normal circumstances,taking into account |
|
|
|
| the loss of capacity resulting from planned maintenance. |
|
|
|
| |
|
|
|
|
|
|
|
| Actual level of production may be used if it approximates normal capacity. |
|
|
| |
|
|
|
|
|
|
|
| Opinions of expert advisory committee of ICAI |
|
|
|
| |
|
|
|
|
|
|
|
| Normal capacity should be assessed by taking into account designed capacity, |
|
| normal level of efficiency based on actual working conditions(and not idle working conditions) |
| and estimated loss of production due to planned maintenance. |
|
|
| |
|
|
|
|
|
|
|
| Installed capacity may not often represent normal capacity. |
|
|
|
| normal capacity is to be determined as per AS-2 |
|
|
|
|
| |
|
|
|
|
|
|
|
| There is no hard and fast rule that normal capacity sholud be determined only |
|
|
| in terms of labour hours. |
|
|
|
|
|
| It may be determined in terms of units of production, machinery hours ect., |
|
|
| |
|
|
|
|
|
|
|
| Idle time due to normal reasons should be considered in determining normal capacity. |
|
| |
|
|
|
|
|
|
|
| Idle time due to abnormal reasons (e.g. due to delay in receipt of orders) |
|
|
| should not be deducted to determine normal capacity. |
|
|
|
| |
|
|
|
|
|
|
|
| Overhead expenses related to idle capacity sholud be treated as period costs |
|
|
| (i.e) expensed in the period in which they are incurred. |
|
|
|
| |
|
|
|
|
|
|
|
| In the case of a newly commissioned plant, normal capacity should be determined |
|
| with reference to the period in which the plant would attain stability. |
|
|
| |
|
|
|
|
|
|
|
| Allocation of fixed production OH should be based on normal capacity so determined |
|
| even in the initial years when actual capacity utilisation may be lower tha normal capacity. |
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Amount of Fixed production OH allocated to each unit of production is |
|
|
| not increased as a consequence of low production or idle plant. |
|
|
| |
|
|
|
|
|
|
|
| Unallocated OH are recognised as an expense in the period in which they are incurred. |
|
| |
|
|
|
|
|
|
|
| In periods of abnormally high production, the amount of fixed production OH allocated to each unit |
| of production is decreased so that inventories are not measured ABOVE COST. |
|
| |
|
|
|
|
|
|
|
| Source : |
|
|
|
|
|
|
|
| |
Indian Accounting Standards & Gaap - Dolphy D' Souza |
|
|
| |
(Commentary,Issues & Solutions) |
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Accounting Standards - An auditors perspective. |
|
|
|
| |
|
|
CA Association - Ahmedabad. |
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
CAclubindia
