Financial Reporting · Ind AS 2 Inventories

Ind AS 2: Cost of Agricultural Produce and Service Providers' Inventories

Updated 5 October 2026 · Fact-checked

Ind AS 41 measures agricultural produce at the point of harvest at fair value less costs to sell, which becomes its initial amount and its cost for Ind AS 2 after harvest. A service provider's inventories (work in progress) are measured at the costs of production, mainly labour and attributable overheads, excluding profit margins and selling and administrative costs.

Understand Cost of Agricultural Produce and Service Providers

Ind AS 2 normally measures inventory at the lower of cost and net realisable value. Two groups need special treatment for cost: harvested agricultural produce and inventories of service providers.

Agricultural produce. Ind AS 41 covers growing living plants and animals (biological assets). While they grow, they are measured at fair value less costs to sell. Ind AS 2 does not apply to biological assets or to agricultural produce at the point of harvest. Ind AS 41 measures the produce (milk, picked tea leaves, cut sugarcane, wool) at that point at its fair value less costs to sell. That is the initial amount. Ind AS 2 then takes it as the cost of the produce from the date of harvest, when it becomes inventory.

Costs to sell are the incremental costs directly attributable to disposal, such as commissions to brokers and dealers, levies by regulators and exchanges, and transfer taxes and duties. They exclude finance costs and income taxes. Separately, if the produce is in a distant market, its fair value is the market price less the transport needed to get it to that market.

Any gain or loss on first recognising the produce at that value goes to profit or loss in the period it arises. Ind AS 41 sets the initial amount. Ind AS 2 governs everything after harvest: later costs of processing add to cost, and the closing figure is the lower of cost and net realisable value.

Service providers. Inventories of a service provider are mainly work in progress on services not yet billed. Their cost is the labour and other costs of the personnel directly engaged in providing the service, including supervisory staff, plus attributable overheads. Selling and general administration labour and overheads are excluded and expensed as incurred. Profit margin is also excluded because it is not a cost.

The key idea: harvest cost is a market-based value, not the actual cost of growing. Service cost is an actual-cost build-up with no profit.

Key rules to remember

Cost of harvested produce: Cost at harvest = Fair value at point of harvest − Costs to sell; Applies to produce harvested from the entity's own biological assets. It is the deemed cost for Ind AS 2 from the date of harvest.
Costs to sell: Costs to sell = incremental costs directly attributable to disposal: commissions to brokers and dealers, levies by regulators and exchanges, transfer taxes and duties (excluding finance costs and income taxes); If the asset is in a distant market, fair value is the market price less transport costs to get it to that market. This is a separate deduction in arriving at fair value.
Service provider inventory cost: Cost = Direct labour of personnel providing the service (incl. supervisors) + Other directly attributable costs + Attributable overheads; Exclude profit margin, non-attributable overheads, and labour for sales and general administration.
Closing measurement: Carrying amount = Lower of (Cost, Net realisable value); Applied after harvest or on service WIP at each reporting date.

How to solve Cost of Agricultural Produce and Service Providers questions

Use this sequence for any question on cost of harvested produce or service provider inventories.

1Identify what the item is: a growing biological asset (Ind AS 41), harvested produce (Ind AS 2) or service WIP.
2For produce, find the fair value at the point of harvest from the market price in the question.
3Adjust for transport to market if the price is at a distant market, then deduct costs to sell such as commission and levies.
4The result is cost under Ind AS 2. Recognise any gain or loss on initial recognition in profit or loss.
5For service WIP, list costs incurred and keep only direct labour, supervision, directly attributable costs and attributable overheads.
6Exclude profit margins, selling and administrative labour and non-attributable overheads.
7At the reporting date compare cost with net realisable value and write down if NRV is lower.
8State the conclusion with the Ind AS reference in provision-facts-conclusion form.

Quickest way: Harvest value minus selling costs, then strip the service cost list

When to use it: Use when time is short and the question gives a market price and a list of costs.

Produce: take the market price at harvest, subtract transport if given, subtract commission and levies. That is cost.
Ignore actual growing costs. They are not the cost of produce.
Service WIP: tick only direct labour, supervision and attributable overheads. Cross out profit, admin and idle costs.
Add the ticked amounts. Compare to NRV only if a selling price is given.

Common mistakes in Cost of Agricultural Produce and Service Providers

Using actual cost of growing as the cost of harvested produce.
Students apply the normal Ind AS 2 purchase and conversion cost logic.
Fix: For produce from own biological assets, cost is fair value less costs to sell at harvest, not the cost of cultivation.
Forgetting to deduct costs to sell.
The market price looks like the final answer.
Fix: Always deduct commission, levies and transfer taxes and duties to reach cost.
Mixing up where transport and commission are deducted.
Both reduce the price received, so students lump them together.
Fix: Costs to sell are the incremental disposal costs such as commission, levies and transfer taxes and duties. Transport to a distant market is deducted from the market price to arrive at fair value. Deduct both, but keep the two steps separate.
Including profit margin in service WIP.
Students value WIP at billing value.
Fix: Service WIP is at cost. Profit is not included and is recognised under Ind AS 115 when earned.
Including selling and administrative staff cost in service inventory.
All employee cost looks like labour cost.
Fix: Only personnel directly engaged in providing the service are included. Expense the rest.
Treating the gain on first recognition of produce as OCI or ignoring it.
Students are unsure which standard governs the gain.
Fix: Recognise the gain or loss in profit or loss for the period in which it arises.

Worked examples

Example 1

Green Valley Ltd, an Ind AS company, harvests 10,000 kg of tea leaves on 15 March 2027 from its plantation. The market price at the nearest auction is ₹250 per kg. Transport to the auction centre is ₹10 per kg. Commission and levies are ₹5 per kg. Closing stock at 31 March 2027 is the entire quantity. Determine the cost at which the leaves are recognised as inventory.

Show the solution

Tea leaves are harvested produce. Ind AS 41 measures them at the point of harvest, and that amount is their cost for Ind AS 2 from that date.
The auction is a distant market, so fair value = market price − transport = ₹250 − ₹10 = ₹240 per kg.
Costs to sell (commission and levies) = ₹5 per kg.
Fair value less costs to sell = ₹240 − ₹5 = ₹235 per kg.
Total = 10,000 × ₹235 = ₹23,50,000.
The produce is recognised at ₹23,50,000, and the corresponding gain on initial recognition is taken to profit or loss under Ind AS 41. The cost of growing is not deducted in arriving at this figure.
No NRV is given, so no NRV write-down is assumed. The closing carrying amount is the lower of cost and NRV, which is the cost of ₹23,50,000.

Answer: The tea leaves are recognised as inventory at ₹23,50,000 (₹235 per kg). This is their cost under Ind AS 2. The gain on initial recognition is recognised in profit or loss. With no NRV given, no write-down is assumed, so the closing carrying amount is ₹23,50,000.

Example 2

Lexa Consultants, an Ind AS company, is engaged on a client assignment not yet billed at the year end. Costs incurred: fees of consultants working on the assignment ₹6,00,000; supervisor salary for the assignment ₹1,00,000; attributable overheads ₹80,000; marketing staff salary ₹50,000; general administration overhead ₹70,000; profit margin of ₹2,00,000 expected on the contract. Compute the cost of the work in progress.

Show the solution

Service WIP is inventory under Ind AS 2 and is measured at cost, without profit margin.
Include consultants' fees: ₹6,00,000.
Include supervisor salary: ₹1,00,000.
Include attributable overheads: ₹80,000.
Exclude marketing staff salary ₹50,000 and general administration overhead ₹70,000, as they are selling and general administration costs.
Exclude expected profit ₹2,00,000, as it is not a cost.
Total = ₹6,00,000 + ₹1,00,000 + ₹80,000 = ₹7,80,000.

Answer: Cost of the work in progress is ₹7,80,000. Marketing, administration and profit are excluded.

Exam tips

Write the formula line 'Fair value less costs to sell at point of harvest = cost' early. Examiners look for it.
In case scenarios, check whether the item is still growing (Ind AS 41) or already harvested (Ind AS 2).
For service WIP, list inclusions and exclusions separately so partial marks are easy to award.
Mention that gain or loss on initial recognition of produce goes to profit or loss.
In MCQs, watch for distractors using actual growing cost or including profit margin.

Practice questions from Ind AS 2 Inventories

Cost of Agricultural Produce and Service Providers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateAgricultural Operations and Processing of Produce

Cost of Agricultural Produce and Service Providers: frequently asked questions

Why is harvested produce not measured at actual cost?

Ind AS 41 measures produce at the point of harvest at fair value less costs to sell, so a market-based value is already available and reliable. That amount is the cost for applying Ind AS 2 from the date of harvest, which keeps the link between the two standards consistent.

What happens to harvested produce after the harvest date?

It is treated as inventory under Ind AS 2. Further processing costs are added, and the carrying amount at each reporting date is the lower of cost and net realisable value.

Can a service provider include profit in inventory?

No. Work in progress is measured at cost. Profit margins and non-attributable overheads are not part of cost and are dealt with when revenue is recognised under Ind AS 115.

Which labour is included in service provider inventory?

Labour and other costs of personnel directly engaged in providing the service, including supervisory staff, plus attributable overheads. Selling and general administration labour is excluded.