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CA Final · Financial Reporting · Ind AS 2 Inventories

Himalaya Agro Ltd, a Pune-based company, holds the following items at the reporting date: (i) packed spices ready for sale to retailers, (ii) spice blends currently being ground and mixed for sale, (iii) packing cartons and jute bags to be used in packing, and (iv) a standby generator used to run the factory for many years. Which of these items fail to meet the definition of inventories under Ind AS 2?

Only the standby generator is not inventory. Finished spices are held for sale, blends are in the process of production for sale, and cartons are materials to be consumed in production. The generator is a long-lived asset used in operations, so it falls outside the Ind AS 2 definition.

  1. AOnly item (iv), the standby generatorCorrect
  2. BOnly item (iii), the packing cartons and bags
  3. CItems (ii) and (iii)
  4. DItems (i) and (iv)

Explanation

Ind AS 2 defines inventories as assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in production. Items (i), (ii) and (iii) fit clauses (a), (b) and (c) respectively. The generator is used over many years in operations and is not held for sale or consumed in production, so it is not inventory. Option B is wrong because materials or supplies to be consumed in production are expressly covered.

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