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CA Foundation · Accounting · Inventories

Mehta Ltd. has 1,000 units of finished goods at year end with cost ₹300 per unit, made from raw materials costing ₹180 per unit included in that cost. The finished goods are expected to sell at ₹280 per unit (NRV). The raw material in stock is 2,000 units with cost ₹180 each, and its current replacement cost is ₹150 per unit. Under AS 2, the total value of the raw material and finished goods should be taken as:

The total is ₹5,80,000. Finished goods are written down to NRV of ₹280 per unit, giving ₹2,80,000. Because the finished goods are sold below cost, the raw materials are written down to replacement cost of ₹150, giving ₹3,00,000. Together they total ₹5,80,000.

  1. A₹6,40,000Correct
  2. B₹5,80,000
  3. C₹6,60,000
  4. D₹6,70,000

Explanation

Finished goods: NRV 280 is below cost 300, so they are valued at 280 x 1,000 = ₹2,80,000. Since finished goods are written down below cost, the raw material is also written down to replacement cost: 2,000 x 150 = ₹3,00,000. Total of the finished goods and raw material is ₹5,80,000, not ₹6,40,000; recheck: 2,80,000 + 3,00,000 = 5,80,000.

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