AS 2: Valuation of Inventories (Stock)

 

The main objective of this AS is to deal with determination of value of inventory to be shown in the financial statements, ascertainment of cost and circumstances where inventory value can be shown at Net Realizable Value (NRV).

 

NRV refers to estimated selling price in the ordinary course of business, less the estimated cost necessary to make the sale. At each balance sheet date, a review of NRV is to be made.

 

This AS is not applicable to shares, debentures, and other instruments held as stock, livestock, agricultural and forest products, mineral oils, gases, ores work in progress of construction contracts, spare parts which are used irregularly in specific fixed assets, etc.

 

Inventories are to be valued at lower of cost and net realizable value (market value)

 

Cost includes cost of purchase, less: trade discount/rebate/duty draw back, freight inward, taxes and duties, direct labour, production overhead, other costs incurred in bringing the inventories to their present location and condition, etc. However, it excludes abnormal wastage of material, labour and other cost, storage cost selling and distribution cost.

 

Cost formula prescribes one specific identification method, FIFO and weighted average method.

 

For ORIGINAL form of AS 2, CLICK HERE