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??
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RAW MATERIAL VALUATION MTK
Replies (2)
Quick Summary
Yes thirty thousand is correct because nrv is lower than cost
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.
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