Indian Accounting Standard (Ind AS) 2 Summary
Indian Accounting Standard (Ind AS) 2, Inventories defines inventories as assets:
– Held for sale in ordinary course of business (finished goods),
– In the process of production for such sale (work in progress), or
– In the form of materials or supplies to be consumed in the production process or in the rendering of services (raw material and consumables).
Generally, inventories are measured at the lower of cost and Net Realisable Values (NRV).
Cost includes all direct expenditure to bring inventories to their present location and condition, including allocated overheads.
The cost of inventory is generally determined under the First-In, First-Out (FIFO) or weighted average method. The use of the Last-In, First-Out (LIFO) method is prohibited.
Inventory costing methods may include standard cost or retail method if they approximate the actual cost.
NRV is the estimated realisable value of inventories less estimated cost to be incurred to make the sale.
If the NRV of an item that has been written down subsequently increases, then the write-down is reversed.
The cost of inventory is recognised as an expense when the inventory is sold.