CA Gaurang Shah
Objective of the standard is to determine the cost of inventory and its subsequent recognition as an expense, including any writing down of value to its net realisable value.
Standard applies to all inventories; except a) website cost, stripping cost; b) financial instruments and c) biological assets.
Standard does not applies to measurement of inventories held by:
a) Producer of agricultural and forest products, agricultural produce after harvest and mineral products (measured at net realisable value)
b) Commodity brokers and dealers (measure at fair value less cost to sell)
Inventories are assets
1. Held for sales in ordinary course of business (finished goods);
2. In the process of production for such sale (work in progress);
3. In the form of materials and supplies to be consumed in the production process or in rendering the services (Raw Materials).
Net Realisable Value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale.
Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation: Inventories are valued at the lower of cost or net realisable value.
Cost shall include:
Cost does not include:
Borrowing costs are included in cost of inventories to the extent conditions are met as per Ind AS 23.
Cost of inventories may not be recoverable if a) Inventories are damage, b) Selling price have declined, c) Estimated cost of completion to be incurred have increased.
a) Accounting policies adopted for measuring inventories;
b) Total carrying amount of inventories and the amount of classification;
c) Inventories carried at fair value less costs to sell;
d) Amount of inventories recognised as an expense;
e) Write-down of inventories recognised as an expense;
f) Amount of any reversal of any write-down;
g) Circumstances or events that led to the reversal of write-down of inventories;
h) Inventories pledged as security for liabilities.
Major difference between Ind AS and Existing Accounting Standards
|Sr No.||Ind AS||Existing AS|
|1||Deals with subsequent recognition of cost/carrying amount of inventories as an expenses.||No such provision.|
|2||Provides explanation with regard to inventories of service providers||AS 2 does not contain such an explanation|
Provides detailed guidance in case of subsequent assessment of net realizable value. Also deals with the reversal of the write-down of inventories to net realizable value to the extent of the amount of original write-down, and the recognition and disclosure thereof in the financial statements
|Does not deal with such reversal|
Excludes from its scope only the measurement of inventories held by producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products though it provides guidance on measurement of such inventories.
|Excludes from its scope such types of inventories|
|5||Does not specifically state so and requires the use of consistent cost formulas for all inventories having a similar nature and use to the entity.||Specifically provides that the formula used in determining the cost of an item of inventory should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.|
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