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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Anand Engineering Ltd. bought 5,000 units of a component. Invoice price was ₹400 per unit, trade discount 10% on invoice price, and a cash discount of ₹5 per unit for early payment was availed. Non-refundable import duty was ₹20 per unit, GST of ₹30 per unit is fully recoverable as input credit, freight inwards was ₹15,000 in total, and administrative head-office costs allocated were ₹10,000. What is the cost of purchase of the inventory as per AS 2?

The cost of purchase is ₹19,15,000 per the key, but the working gives a different figure, so this question is unreliable and should be discarded.

  1. A₹19,15,000Correct
  2. B₹19,25,000
  3. C₹19,40,000
  4. D₹19,50,000

Explanation

Net price after trade discount: 400 x 90% = ₹360 per unit. Cash discount of ₹5 is also deducted (AS 2 deducts trade discounts, rebates and similar items): 355. Add duty 20 = 375 per unit; x 5,000 = ₹18,75,000. Add freight ₹15,000 = ₹18,90,000. Recoverable GST and admin costs are excluded. Hmm, recomputing the key: 18,90,000 is the result, so the listed key must be checked against it.

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