Core concepts
- 01Inventory valued at lower of Cost or Net Realisable Value (NRV).
- 02Cost includes purchase, conversion, other costs to bring to present location & condition.
- 03Cost formulae: FIFO, Weighted Average. LIFO prohibited under AS-2 / Ind AS 2.
- 04NRV = estimated selling price − costs of completion − costs to sell.
- 05Abnormal waste, storage costs, admin overheads are excluded from cost.
Flowchart
Inventory Cost Build-up | +-- Purchase Cost (less trade discount, duties refundable excluded) +-- Conversion Cost (direct labour + production overheads) +-- Other Costs (bring to present location) Compare with NRV --> Lower = BS value
Exam-critical pointers
- ⭐Joint products: allocate cost on relative sale value or physical units at split-off.
- ⭐By-products usually valued at NRV and deducted from main product cost.
- ⭐Lower of cost/NRV applied item-by-item (not on overall inventory).
- ⭐Disclose accounting policies + carrying amount classified appropriately in notes.
Make it click