CA Foundation · Accounting · Inventories
Kapoor Builders is a contractor. It has the following at year end: (i) raw cement and steel of ₹4,00,000 in its general store, not yet issued to any contract; (ii) work in progress of ₹12,00,000 on a construction contract for a customer; (iii) finished tiles for resale of ₹2,00,000. What amount is to be valued under AS 2?
The amount valued under AS 2 is ₹6,00,000, being unissued materials of ₹4,00,000 plus finished tiles of ₹2,00,000. Work in progress on a construction contract is excluded from AS 2 and is covered by the standard on construction contracts.
- A₹18,00,000
- B₹6,00,000Correct
- C₹14,00,000
- D₹2,00,000
Explanation
Work in progress arising under construction contracts is outside AS 2 (it is dealt with by the construction contracts standard). Materials in the general store (₹4,00,000) and finished tiles held for resale (₹2,00,000) are inventories. Total under AS 2 = 4,00,000 + 2,00,000 = ₹6,00,000. Including the contract WIP gives ₹18,00,000, which is wrong.
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