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RAW MATERIAL VALUATION MTK

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MPR Sanjay Kumar

1675 Points Posted on 03 September 2022

as per Accounting standard 2 valuation of inventories, RAW MATERIAL should be valued at cost ( if finished good sir above the selling price of this) otherwise replacement cost

for an example I purchased certain raw materials for manufacturing at the cost Rs . 50,000 ,at the processing of my manufacturing I need additional raw material so I am purchasing additional raw material on the date raw material prices 40,000..... finally my net realisable value of my finished goods is rupees 3,0000

in this case in my books of accounts can I value the inventory lower of cost rupees 30000 it is correct or not??

please guide me

Special query: Replacement cost means current market price but when we require this replacement cost for example if any additional raw materials needed we are going to purchase that's it or not??

Replies (2)

Quick Summary

This discussion clarifies the valuation of raw materials under Accounting Standard 2 (IAS 2). Raw materials should generally be valued at cost. However, if the net realisable value (NRV) of finished goods is lower than the cost, the raw materials should be valued at NRV. Replacement cost is primarily used when there's a specific need for additional materials and the current market price is relevant, especially if it's lower than the original cost and NRV.

Yasaswi Gomes new

Finance

3328 Points Posted on 04 September 2022

Yes thirty thousand is correct because nrv is lower than cost

Yasaswi Gomes new

Finance

3328 Points Posted on 05 September 2022

Remember this:

Cost = all cost from purchases till bringing the inventory to present location to make a sale

NRV = selling price minus all costs associated with the sale

Replacement cost = you have to use this only when there is a special need. If you purchased material for 109 and it declined to 59 + when the cost is more than NRV = then you have to write down the cost to NRV value using 59. This 59 is the new replacement cost. In other circumstances, you need not think about replacement cost.