Skip to content

CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Kaveri Foods Ltd. has 500 units of packed snacks on hand at year end. Cost is ₹80 per unit. The selling price is ₹95 per unit, with selling expenses of ₹18 per unit needed to make the sale. Under AS 2, at what value should the closing stock be shown?

Closing stock is valued at ₹38,500. AS 2 requires inventory at the lower of cost and net realisable value. NRV is ₹95 less ₹18 selling expense, which is ₹77 per unit, below cost of ₹80, so 500 units are valued at ₹77 each.

  1. A₹40,000
  2. B₹38,500Correct
  3. C₹47,500
  4. D₹36,000

Explanation

Net realisable value = 95 - 18 = ₹77 per unit. Cost is ₹80, so the lower is ₹77. Value = 500 x 77 = ₹38,500. Using cost gives 40,000, ignoring the write-down; using the selling price is not the NRV.

Did you get it right without looking?

One question tells you little. A timed set on AS 2 Valuation of Inventory shows your real accuracy, how long you take and where you lose marks.

Practise AS 2 Valuation of InventoryFree diagnostic mock

More AS 2 Valuation of Inventory questions