IndAS 2 prescribes the accounting treatment for inventories, such as, determination of cost and its subsequent recognition as expense, including any write-downs of inventories to net realisable value and reversal of write – downs.
Scope of Ind AS 2
Ind AS 2 applies to all inventories, except work in progress arising under construction contracts, including directly related service contr acts (Ind AS 11, Construction Contracts), financial instruments (Ind AS 32, Financial Instruments: Presentation and Ind AS 109, Financial Instruments); and biological assets (i.e., living animals or plants) related to agricultural activity and agricultural produce at the point of harvest (Ind AS 41, Agriculture) The Standard prescribes that the inventories shall be measured at the lower of cost and net realisable value. Cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, of the amount the inventories are expected to realise.
Cost of inventories of service provider
To the extent that service providers have inventories, they measure them at the costs of their production. These costs consist primarily of the labour and other costs of personnel directly engaged in providing the service, including supervisory personnel and attributable overheads. Labour and o ther costs relating to sales and general administrative personnel are not included but are recognised as expenses in the period in which they are incurred. The cost of inventories of a service provider does not include profit margins or non-attributable overheads that are often factored into prices charged by service providers.
Cost
Formulae
Summary of Ind AS The cost of inventories shall be assigned by using the first-in first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity.
Recognition as an Expense
When inventories are sold, the carrying amount of inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down to net realisable value and all losses of inventories shall be recognised as an expense in the period in which the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net relisable value, shall be recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
Difference Between Ind AS 2 and AS 2
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