Ind-AS-2 Accounting for Inventories incorporating Companies (Indian Accounting Standards) Amendment Rules 2020
Ind-AS-2. Accounting for Inventories incorporating Companies (Indian Accounting Standards) Amendment Rules 2020I hereby want to summarize the latest provisions with respect to Ind-AS 2 –Inventories. Following are the important and latest provisions.
AS-2 Valuation of Inventories
Important Points are as follows
1. Matching Concept is the relevant concept for Inventories. As per this concept, inventories should be accounted for as an expense in the year in which it is sold. Till that time, it is accounted for as an asset, ie, closing stock.
Inventories Consists of the following
a. Held for sale in the ordinary course of business(finished goods)
b. In the process of production of such sale(raw material and work-in-progress)
c. In the form of materials or supplies to be consumed in production process or in the rendering of services (stores, spares, raw materials, consumables).
3. There is no major difference between IAS -2and Ind-AS-2.Only difference is in the Presentation of financial statements with respect to inventories.
4. Differences between IAS-2 and Ind-AS-2.
|Ind-AS 2||IAS 2|
|1.Inventories expense is recognized in the changes in inventories of finished goods and work-in-progress and raw materials consumed||1.Inventories expense is recognized in the changes in inventories of finished goods and work-in-progress and raw materials consumed or inventories expense is recognized as cost of sales|
|2.Relevant terms are Statement of profit and loss and balance sheet||2. Relevant terms are Statement of Comprehensive Income and Statement of Financial Position|
5. Measurement of Inventories
Cost OR Net realizable value
Whichever is less
6. Cost= Cost of Purchase +Cost of Conversion +Other Costs
A. Cost of Purchase =Purchase price-Trade Discount –Rebates +Duties and non-refundable taxes +Carriage inwards+ Frieght +GST+ Forwarding Charges for external transport +Transport Insurance+ Cost for a letter reference+ Commission and brokerage paid+ Handling Costs+ Other expenditures directly attributable to the acquisition of finished goods, materials and services
B. Cost of conversion.
i. Direct Material
ii. Direct labour
iii. Direct expenses
iv. Fixed Production Overheads on normal capacity
v. Indirect material
vi. Indirect labour
vii. Other Variable Production Overheads
viii. Joint Product costs less net realizable value of by-products
ix. Normal wastage Cost of materials
x. Repairs and maintenance
C. Other costs.
Only if incurred in bringing inventories to present location and conditions
7. A detailed statement showing costs is as follows
Add: Factory Overheads
Add: Office and Administration Overhead(only a portion is required)
8. Exclusions from Cost of Inventories.
Following Costs are excluded from the cost of Inventories
1. Abnormal amounts of wasted materials, labour and other production cost.
2. Storage cost unless those costs are necessary in the production process before further stage
3. Administrative overheads
4. Selling and distribution Cost
5. Interest cost when inventories are purchased on deferred payment basis
9. Cost of Inventories of a service provider.
(This is Omitted by the companies (Indian Accounting Standards) Amendment Rules ,2018 w.e.f 01/4/2018
10. Cost formula
a. Specific Identification method.
Where Specific Identification method is not applicable
i. First in First Out (FIFO)
ii. Weighted Average Cost
Cost of Inventories in certain conditions
i. Standard Cost—-By considering normal levels of materials and supplies, labour, efficiency and capacity utilization.
ii. Retail Method—it is used in retail industry
An entity must use same cost formula for all inventories having a similar nature and use within the entity
11. Net Realizable Value.
12. Estimation of net realizable value
14. Disclosures in the financial statement
The financial statement should disclose the following