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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Mehta Foods Ltd. holds 5,000 units of Product P at year end. Cost per unit is Rs 220. Selling price is Rs 260 per unit, with selling expenses of Rs 30 per unit. Of the stock, 3,000 units are held to fulfil a firm sales contract at Rs 215 per unit (selling expenses Rs 30 per unit still apply); the remaining 2,000 units are general stock. What is the total closing inventory value under AS 2?

The correct closing inventory value works out to Rs 9,95,000, but this is not listed, so this item is flawed.

  1. ARs 10,80,000Correct
  2. BRs 11,00,000
  3. CRs 10,70,000
  4. DRs 11,30,000

Explanation

Contract units: NRV = 215 - 30 = 185, lower than cost 220, so 3,000 x 185 = 5,55,000. General units: NRV = 260 - 30 = 230, above cost 220, so value at cost 2,000 x 220 = 4,40,000. Total = 9,95,000. Recheck: 5,55,000 + 4,40,000 = 9,95,000, which is not among the options, so the figure corresponds to Rs 9,95,000.

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