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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Meenakshi Foods Ltd. has 1,000 units of a finished product in stock at a cost of Rs 240 per unit. The estimated selling price is Rs 260 per unit, and selling costs of Rs 30 per unit are expected. Under AS 2, at what value should the closing stock of this product be shown?

Closing stock should be valued at Rs 2,30,000. AS 2 requires inventory at the lower of cost and net realisable value. NRV is Rs 260 less Rs 30 selling cost, Rs 230 per unit, which is below cost of Rs 240, so 1,000 units are valued at Rs 230.

  1. ARs 2,40,000
  2. BRs 2,60,000
  3. CRs 2,30,000Correct
  4. DRs 2,70,000

Explanation

Net realisable value = 260 - 30 = Rs 230 per unit. Cost is Rs 240, so lower of cost and NRV is Rs 230. Value = 1,000 x 230 = Rs 2,30,000. Using selling price of Rs 260 ignores selling costs and is wrong.

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