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Ind as 2 query related to carrying amount of inventory

19 December 2021

Para 34 of Ind As 2 states carrying of inventory sold should be recognized as an exp in the period in which the revenue is recognized. pls help me to understand this in relation to storage cost. Does it mean that if godown rent paid in previous period and inventory is sold in next period, then rent in relation to inventory sold should be recognized as an exp in next period ?

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 19 December 2021

Ok. There is always a flaw in teaching as they dont teach anything correctly. I am also a victim of colleges, employers, managers and police who are uneducated themselves. the point here is

Note: that the cost of materials issued plus the value of closing inventory equals the cost of purchases
plus the value of opening inventory. This is applicable during the FIFO valuation. We calculate the cost of closing inventory for every batch produced and sold. This month you purchased material- cost is recorded. Sold goods- value is recorded. If you follow examples of FIFO, Weighted average cost method, you will understand how the ending inventory value is derived.

Second part is, the storage costs will be included into the cost of closing inventory and sold goods. After that you will use FIFO or Weighted average cost on inventory method to find the closing stock value.

NRV or Cost whichever is the lowest is used and the profit is derived from revenue recognition standard.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 19 December 2021

that means, if you sell the closing stock at same price, there will be no profit. So profit margin is used after inventory valuation.

Inventory valuation is done using FIFO or Weighted average method. This includes all WIP, conversion and storage costs.

Sales profit is defined from revenue recognition- transaction costs are assigned to performance obligations.

The Weekend Professor (Teaching Enthusiast) (33 Points)
Replied 12 February 2022

Hello Rajeev,

Greetings from the Weekend Professor!

Para 15-18 of Ind AS 2 deal with "Other Costs incurred in bringing Inventories to their present location and condition". As per the Standard, Storage Costs should be excluded from the "Cost of Inventories" and recognized as an Expense in the period in which they are incurred unless those costs are necessary in production process before a further production stage.

Hope you find the above guidance useful.

Regards, TWP

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 13 February 2022

The Weekend Professor- I am sorry I did not read about storage costs and luckily did not advocate a wrong answer. https://www.mca.gov.in/Ministry/pdf/INDAS2.pdf

In para 16.b it is written that, storage costs during WIP is included in the cost of inventory. Finished goods storage costs are expenses. IndAS English is better and easy to understand. Hence I attached it here. I’m glad you brought this up. Have a nice weekend.