Valuation of inventory

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10 Points Joined December 2020

Hello all

If finished good are valued at nrv then raw materials should be valued at replacement cost.

What if RM cost 140 and Replacement cost is 170?

Should  we still take 170 for valuation of closing stock of RM?

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On 09 September 2024 at 18:27 Report
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Master in Accounts & high court Advocate
9434 Points Joined December 2011

If the finished goods are valued at NRV (Net Realizable Value), then the raw materials should be valued at Replacement Cost. In this case, if the Raw Material (RM) cost is 140 and the Replacement Cost is 170, you should value the closing stock of RM at 170. Here's why: - Replacement Cost is the current market price to replace the RM. - Since the Replacement Cost (170) is higher than the original cost (140), it indicates that the RM's value has increased. - Valuing the closing stock at Replacement Cost (170) reflects the current economic reality and ensures that the financial statements accurately represent the company's financial position. However, if the Replacement Cost were lower than the original cost, you would value the closing stock at the lower value. Remember to consult with a financial expert or refer to relevant accounting standards (e.g., IAS 2 or Ind AS 2) for specific guidance on inventory valuation.

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On 12 September 2024 at 19:10
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Master in Accounts & high court Advocate
9434 Points Joined December 2011

If the finished goods are valued at NRV (Net Realizable Value), then the raw materials should be valued at Replacement Cost. In this case, if the Raw Material (RM) cost is 140 and the Replacement Cost is 170, you should value the closing stock of RM at 170. Here's why: - Replacement Cost is the current market price to replace the RM. - Since the Replacement Cost (170) is higher than the original cost (140), it indicates that the RM's value has increased. - Valuing the closing stock at Replacement Cost (170) reflects the current economic reality and ensures that the financial statements accurately represent the company's financial position. However, if the Replacement Cost were lower than the original cost, you would value the closing stock at the lower value. Remember to consult with a financial expert or refer to relevant accounting standards (e.g., IAS 2 or Ind AS 2) for specific guidance on inventory valuation.

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On 12 September 2024 at 19:10
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10 Points Joined December 2020

Thank you so much for spending time to resolve the doubt. Means a lot, Now i got clarity about the concept behind it. 

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On 13 September 2024 at 22:58


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