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CA Final · Financial Reporting · Ind AS 2 Inventories

Dhanush Engineering Ltd. is preparing its Ind AS financial statements. Its accountant lists the following as inventories: (a) steel sheets held to be cut and used in manufacturing machines, (b) machines partly assembled for sale to customers, (c) finished machines held for sale, and (d) a machine installed in its own factory for making other machines. Which combination correctly identifies the items that meet the Ind AS 2 definition of inventories?

Steel sheets, partly assembled machines and finished machines are inventories, because they are materials to be consumed in production, work in process, and goods held for sale in the ordinary course. The machine installed in the factory is used in production rather than held for sale, so it is not inventory.

  1. A(a), (b) and (c) onlyCorrect
  2. B(a), (b), (c) and (d)
  3. C(b) and (c) only
  4. D(a) and (c) only

Explanation

Under paragraph 6, inventories are assets held for sale in the ordinary course, in the process of production for such sale, or in the form of materials or supplies to be consumed in production. Steel sheets are materials (c of para 6), partly assembled machines are work in process (b), and finished machines are held for sale (a). The machine installed in the factory is used to produce goods, not held for sale, so it is not inventory. Option (b) wrongly includes it.

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