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CA Final · Financial Reporting · Ind AS 2 Inventories

Himalaya Tea Estates Ltd grows tea bushes and sells processed tea. Its finance team is classifying items for the year-end balance sheet: (i) tea leaves plucked from its own bushes at the point of harvest, (ii) packing cartons held to be used in packing tea for sale, (iii) packed tea held for sale in the ordinary course of business. Which of the following statements is correct under Ind AS 2?

Packing cartons and packed tea are inventories under Ind AS 2. Tea leaves at the point of harvest are agricultural produce, which Ind AS 2 excludes from its scope and Ind AS 41 governs. So the statement treating only the harvested leaves as outside Ind AS 2 is correct.

  1. AItems (ii) and (iii) are inventories, while item (i) at the point of harvest is outside the scope of Ind AS 2 and is dealt with by Ind AS 41Correct
  2. BAll three items are inventories under Ind AS 2, since each is held for sale or consumed in production
  3. COnly item (iii) is inventory; packing cartons are always expensed when purchased
  4. DItems (i) and (iii) are inventories, while packing cartons are property, plant and equipment

Explanation

Ind AS 2 defines inventories as assets held for sale in the ordinary course, in the process of production for sale, or in the form of materials or supplies to be consumed in production. Packing cartons are materials or supplies consumed in production and packed tea is held for sale, so both are inventories. Agricultural produce at the point of harvest is scoped out of Ind AS 2 and falls under Ind AS 41, so option B is wrong.

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