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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Kaveri Textiles Ltd. purchased 2,000 metres of cloth at Rs 150 per metre. Trade discount of 10% was allowed on the list price (Rs 150 is the list price). Freight inward was Rs 6,000, GST paid on purchase of Rs 27,000 is fully eligible for input tax credit, and the company incurred Rs 4,000 on storage of the cloth after purchase, which was not necessary for production. What is the cost of purchase to be included in inventory under AS 2?

The cost is Rs 2,76,000. Trade discount reduces the list price to Rs 2,70,000, and freight inward of Rs 6,000 is added. Recoverable GST is excluded, and storage costs not necessary for production are excluded under AS 2.

  1. ARs 2,76,000
  2. BRs 2,70,000Correct
  3. CRs 3,03,000
  4. DRs 3,00,000

Explanation

List price = 2,000 x 150 = 3,00,000. Less 10% trade discount = 2,70,000. Add freight inward 6,000 = 2,76,000. Recoverable GST is excluded; unnecessary storage is excluded. Cost = 2,76,000. Correction: the correct figure is Rs 2,76,000, i.e. option 1.

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