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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Kaveri Textiles Ltd. bought 2,000 metres of fabric from a supplier at Rs 150 per metre. The invoice also showed GST of Rs 54,000, of which the company can claim full input tax credit. Other costs: freight inward Rs 12,000, trade discount of Rs 15,000 already shown separately on the invoice (not deducted in the Rs 150 rate), and Rs 6,000 for storing the fabric before it was needed for production, which was not necessary for production. What is the cost of purchase of the fabric as per AS 2?

The cost is Rs 2,97,000. Purchase price of Rs 3,00,000 plus freight inward of Rs 12,000, less trade discount of Rs 15,000. GST is excluded because input credit is available, and storage costs not necessary for production are excluded under AS 2.

  1. ARs 2,97,000Correct
  2. BRs 2,97,000 plus Rs 6,000 storage, i.e. Rs 3,03,000
  3. CRs 3,51,000
  4. DRs 2,91,000

Explanation

Purchase price 2,000 x 150 = 3,00,000. Add freight inward 12,000 = 3,12,000. Deduct trade discount 15,000 = 2,97,000. GST with full credit is excluded, and storage costs not necessary for production are excluded. Including the storage cost (option 2) is wrong, and including GST (option 3) is wrong because credit is available.

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