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CA Final · Financial Reporting · Ind AS 2 Inventories

Narmada Foods Ltd manufactures packaged snacks. During the year it incurred: raw materials purchased Rs 40,00,000; direct labour Rs 8,00,000; factory overheads allocated to production Rs 6,00,000; storage cost of finished goods in its own warehouse after production Rs 1,50,000, which was not necessary for the production process; and selling expenses Rs 2,50,000. All costs relate to 10,000 units completed and unsold at year end. What is the cost of these inventories under Ind AS 2?

The cost is Rs 54,00,000, being materials Rs 40,00,000, direct labour Rs 8,00,000 and production overheads Rs 6,00,000. Storage costs not necessary in the production process and selling expenses are not part of the cost of bringing inventories to their present location and condition, so they are expensed.

  1. ARs 58,00,000
  2. BRs 54,00,000Correct
  3. CRs 55,50,000
  4. DRs 56,50,000

Explanation

Cost comprises purchase costs, conversion costs and other costs incurred in bringing inventories to present location and condition. Materials 40,00,000 + labour 8,00,000 + factory overheads 6,00,000 = 54,00,000. Storage not necessary for production and selling expenses are excluded and expensed. Rs 55,50,000 wrongly includes the storage cost.

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