Accounting Standard 2:
Valuation of Inventories
· This standard should be applied in accounting for inventories other than WIP arising under construction contracts, WIP of service providers, shares, debentures and financial instruments held as stock-in-trade, producers’ inventories of livestock, agricultural and forest products and mineral oils, ores and gases to the extent measured at net realizable value in accordance with well-established practices in those industries.
· Inventories are assets held for sale in ordinary course of business, in the process of production of such sale, or in form of materials to be consumed in production process or rendering of services.
· Inventories do not include machinery spares which can be used with an item of fixed asset and whose use is irregular.
· Net realisable value is the estimated selling price less the estimated costs of completion and estimated costs necessary to make the sale.
· Cost of inventories should comprise all costs incurred for bringing the inventories to their present location and condition.
· Inventories should be valued at lower of cost and net realisable value. Generally, weighted average cost or FIFO method is used in cases where goods are ordinarily interchangeable.
· Specific Identification Method to be used when goods are not ordinarily interchangeable or have been segregated for specific projects.
· Disclose the accounting policies adopted including the cost formula used, total carrying amount of inventories and its classification.
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