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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Kaveri Appliances Ltd. has 500 units of product Q in stock at year end, with cost Rs 800 per unit. Estimated selling price is Rs 950 per unit, and selling costs are Rs 40 per unit. Further, the units need Rs 130 per unit of additional finishing cost to be sold. At what value should the closing stock of product Q be reported?

Closing stock should be valued at Rs 3,90,000. NRV per unit is the selling price of Rs 950 less finishing cost of Rs 130 and selling cost of Rs 40, which is Rs 780. This is below cost of Rs 800, so AS 2 requires valuation at NRV for 500 units.

  1. ARs 4,00,000
  2. BRs 3,90,000
  3. CRs 3,65,000Correct
  4. DRs 4,25,000

Explanation

Net realisable value per unit = 950 - 40 - 130 = 780. Cost is 800, so lower value is NRV 780. Total = 500 x 780 = 3,90,000. Check: 500 x 800 = 4,00,000 cost; write-down 20 x 500 = 10,000, giving 3,90,000.

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