Ind AS 2 | Indian Accounting Standard | Inventories | Summary

Overview

Ind AS 2 | When we say what is inventories, we mean those goods which are sold in the ordinary course of business. If your business is of supplying computers, the computer unit can be inventory for you because you are selling it in the ordinary course of business.

Types of Inventory 

You can bifurcate inventory into THREE categories:

1. Raw Material: These are in the form of materials and supplies to be consumed in the production process or in the rendering of services
2. Work-in-Progress: These are in the process of production for such sale 
3. Finished Goods: These are held for sale in the ordinary course of business.

Now don't tell me you are not aware of these terms. But if you are still not able to understand the meaning of the above words, go to google and search. 😂😂😂

Measurement of Inventories

Always recognized at the lower of cost and net realizable value

Cost:  It comprises of 

1. All costs of purchase: It is comprised of the purchase price, Import duties or other taxes, transport cost, and other directly attributable costs.
2. Cost of conversion: It consists of direct material, direct labor, other direct costs, and overhead costs 
3. Direct costs: These are incurred in bringing the inventories to their present location and condition. 

Abnormal cost, storage cost, administrative overheads, selling costs are excluded from the cost of inventories.

Net realizable value= It is equal to selling prices less expected cost to sell. 

Allocation of cost to by-products

When one production process is producing more than one product simultaneously, it results in by-products

For example- Molasses is a byproduct of refining sugar, Sawdust is a byproduct of the lumber industry, and feathers are a byproduct of poultry processing, and many more...

When the costs of conversion of each product are not separately identifiable, they are allocated on some rational basis. Sales prices at the separation stage of each product can be a rational basis for allocating the inseparable cost of conversion.

When by-products are immaterial, they are measured at a net realizable value and this is deducted from the cost of the main product

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DISCLAIMER 

The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however, it should not be perceived as professional or legal advice. The reader should consult a professional before making any decision based upon this document. Under no circumstance, the author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.