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CA Final · Financial Reporting · Ind AS 2 Inventories

Kaveri Components Ltd bought raw material for its Pune plant. The invoice price was ₹10,00,000. The company also paid ₹40,000 import duty that is not recoverable, ₹25,000 freight inward, and ₹15,000 for a trade discount that is already shown as a deduction in the invoice price (no further adjustment is needed). It also incurred ₹30,000 on storing the material in a general warehouse before it was needed for production, where the storage was not necessary for the production process. What is the cost of the raw material to be recorded as inventory?

The cost is ₹10,65,000. It comprises the net invoice price of ₹10,00,000, non-recoverable import duty of ₹40,000 and freight inward of ₹25,000. Storage in a general warehouse that is not necessary for production is excluded and expensed, and the trade discount is already deducted in the price.

  1. A₹10,65,000Correct
  2. B₹10,95,000
  3. C₹10,80,000
  4. D₹10,40,000

Explanation

Cost of purchase includes the invoice price (already net of the trade discount) plus non-recoverable duty and freight inward: 10,00,000 + 40,000 + 25,000 = ₹10,65,000. Storage costs not necessary in the production process are excluded and expensed. Adding the ₹30,000 storage gives ₹10,95,000, which is wrong. The discount is already netted, so deducting or adding it again would be double counting.

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