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Accounting · Inventories

Disclosure Requirements under AS 2 (Inventories)

Updated 1 October 2026 · Fact-checked

AS 2 disclosure requirements tell a company what to report about its inventories in the financial statements. You must disclose the accounting policies used to measure inventories, including the cost formula, and the total carrying amount, shown by classification such as raw materials, work-in-progress, finished goods and stores. Know these items for theory questions.

Understand Disclosure Requirements under AS 2

Disclosure means telling the reader of the financial statements what you did and what the numbers are. A closing stock figure alone is not enough. Readers need to know how it was valued and what it is made up of.

AS 2 asks for three disclosures. First, the accounting policies adopted in measuring inventories, including the cost formula used (such as FIFO or weighted average). Second, the total carrying amount of inventories. Third, the carrying amount in classifications appropriate to the enterprise.

Common classifications are raw materials and components, work-in-progress, finished goods, stores and spares, and loose tools. Trading concerns usually show goods held for sale. This breakdown helps users see how much stock is at each stage of production.

Where the policy is to value at lower of cost and net realisable value (NRV), say so clearly in the accounting policy. AS 2 does not ask you to disclose a separate amount of inventories carried at NRV. That requirement belongs to Ind AS 2. If a question gives a write-down, you may mention the NRV amount as additional information, but it is not one of the three AS 2 disclosures.

The disclosure of the cost of inventories recognised as an expense during the period also belongs to Ind AS 2, not AS 2. In an AS 2 answer, give only the three disclosures above: the policy with the cost formula, the total carrying amount and the classification.

Key rules to remember

Policy disclosure
Accounting policy = measurement basis (lower of cost and NRV) + cost formula (FIFO / weighted average / specific identification)
State both the basis and the formula. Do not only name one.
Total carrying amount
Total inventories = Raw materials + Work-in-progress + Finished goods + Stores and spares + Loose tools (as applicable)
Show each classification relevant to the business, then the total.
Measurement basis
Carrying amount = lower of cost and net realisable value
The disclosed policy must match how the figure was actually computed.
Cost of inventories sold (background only)
Cost of inventories sold = Opening stock + Purchases (and conversion costs) − Closing stock
This links stock to the cost of goods sold. Its disclosure as an expense is an Ind AS 2 requirement, not an AS 2 disclosure.

How to solve Disclosure Requirements under AS 2 questions

Use this method for any theory or short-note question on AS 2 disclosures, and for numerical questions that ask you to present inventory in a note.

  1. 1Read the question and note whether it asks for a list, a short note or a presentation of figures.
  2. 2Start with the accounting policy: state that inventories are valued at lower of cost and net realisable value.
  3. 3Name the cost formula used, for example FIFO or weighted average.
  4. 4State that the total carrying amount of inventories must be disclosed.
  5. 5Break the total into classifications suitable to the business: raw materials, work-in-progress, finished goods, stores and spares.
  6. 6Stop at these three disclosures for an AS 2 answer. Mention the NRV amount or the expense recognised only if the question asks for Ind AS 2.
  7. 7For numerical questions, add the classes carefully and check that they equal the total.

Quickest way: Three-part recall for AS 2 disclosure

When to use it: Use it for 2 to 4 mark theory questions where you have little time.

  1. Write policy first: basis plus cost formula.
  2. Write total carrying amount second.
  3. Write classification third, with examples: raw materials, WIP, finished goods, stores and spares.
  4. Do not add Ind AS 2 items such as the amount carried at NRV or cost recognised as expense, unless the question asks for Ind AS 2.
  5. Use bullet points so the examiner can tick each item quickly.

Common mistakes in Disclosure Requirements under AS 2

  • Writing only the total closing stock figure

    Students think disclosure means showing the number.

    Fix: Always add the policy and the classification. The question tests the three disclosures.

  • Naming the valuation basis but not the cost formula

    Lower of cost and NRV is memorised well, while FIFO or weighted average is forgotten.

    Fix: Write both in one line: valued at lower of cost and NRV, cost determined by the stated formula.

  • Using classifications that do not suit the business

    Students copy a standard list for every entity.

    Fix: Choose classes that fit. A trader shows goods held for sale, not work-in-progress.

  • Adding items in the classification that are not inventories

    Spare parts or plant items are confused with stores.

    Fix: Include only items that meet the inventory definition. Fixed assets are excluded.

  • Mixing Ind AS 2 disclosures into an AS 2 answer

    The two standards cover the same subject and their texts look alike.

    Fix: For AS 2, give the policy with cost formula, total carrying amount and classification. The amount at NRV and the cost recognised as expense are Ind AS 2 disclosures.

  • Disclosing the NRV write-down figure as the cost

    The lower value is used and the original cost is lost.

    Fix: Show the carrying amount and state in the policy that inventories are valued at lower of cost and NRV.

Worked examples

Example 1

A company values inventories at lower of cost and NRV using the FIFO formula. At year end it holds raw materials ₹4,00,000, work-in-progress ₹2,50,000, finished goods ₹6,50,000 and stores and spares ₹1,00,000. Present the AS 2 disclosure.

Show the solution
  1. Policy: inventories are valued at lower of cost and net realisable value, and cost is determined on the FIFO basis.
  2. Classification: raw materials ₹4,00,000; work-in-progress ₹2,50,000; finished goods ₹6,50,000; stores and spares ₹1,00,000.
  3. Total: 4,00,000 + 2,50,000 = 6,50,000; plus 6,50,000 = 13,00,000; plus 1,00,000 = 14,00,000.

Answer: Total carrying amount of inventories is ₹14,00,000, disclosed with the FIFO and lower of cost and NRV policy and the four classifications above.

Example 2

Write a short note on the disclosures required by AS 2 in the financial statements.

Show the solution
  1. Open with the accounting policies: valuation at lower of cost and NRV, and the cost formula used.
  2. Next, state the total carrying amount of inventories.
  3. Then state that the carrying amount is shown in classifications suitable to the enterprise, such as raw materials, work-in-progress, finished goods and stores and spares.
  4. Stop here. The amount carried at NRV and the cost recognised as an expense are Ind AS 2 disclosures, so they are not part of the AS 2 answer.

Answer: AS 2 requires disclosure of the accounting policies including the cost formula, the total carrying amount of inventories, and its classification appropriate to the enterprise.

Exam tips

  • Theory questions on this topic are short. Give a clear list of three bullet points.
  • Always attach the policy and the cost formula to any numerical presentation of inventory.
  • Use the words carrying amount, classification and cost formula. Examiners look for these.
  • Check that classified amounts add up to the total before you write the answer.
  • If a question mentions a write-down, link it to lower of cost and NRV in the policy. Do not present the NRV amount as an AS 2 disclosure.

Practice questions from Inventories

Disclosure Requirements under AS 2: frequently asked questions

What are the main AS 2 disclosure requirements?

You must disclose the accounting policies used for measuring inventories, including the cost formula. You must also show the total carrying amount and its classification appropriate to the enterprise. These are the three AS 2 disclosures.

Which classifications of inventory are usually shown?

Common classes are raw materials and components, work-in-progress, finished goods, stores and spares, and loose tools. The classes should suit the business, so a trader shows goods held for sale.

Do I need to name the cost formula in the answer?

Yes. The cost formula such as FIFO or weighted average is part of the accounting policy disclosure. Leaving it out can cost you a mark.

Are the amount at NRV and the cost recognised as expense AS 2 disclosures?

No. Both are disclosure requirements of Ind AS 2, not AS 2. In an AS 2 answer, give the policy with cost formula, the total carrying amount and the classification.

Is this topic asked as theory or numerical?

Mostly theory, such as a short note or a list of disclosures. Sometimes a numerical asks you to present inventory by class and find the total.