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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Himalaya Textiles Ltd. purchased 5,000 metres of fabric at Rs 200 per metre. Trade discount of 10% on list price was allowed (the Rs 200 is the list price). Freight inward was Rs 15,000, and GST of Rs 90,000 paid on purchase is fully eligible for input tax credit. Rs 5,000 was spent on storage of finished goods after production. What is the cost of purchase of the fabric per AS 2?

The cost of purchase is Rs 9,15,000. It is the list price less trade discount (Rs 9,00,000) plus freight inward of Rs 15,000. Recoverable GST is excluded, and storage costs of finished goods are not part of purchase cost under AS 2.

  1. ARs 9,15,000Correct
  2. BRs 9,20,000
  3. CRs 10,15,000
  4. DRs 10,05,000

Explanation

List price 5,000 x 200 = 10,00,000; less 10% trade discount = 9,00,000; add freight inward 15,000 = 9,15,000. Creditable GST is excluded from cost. Storage of finished goods is excluded. Rs 9,20,000 wrongly adds storage of finished goods.

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