Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Inventories (Ind AS 2)

Sundaram Motors Ltd sold 40 vehicles in March 2027 that were carried in inventory at a cost of Rs 6,00,000 each. Delivery and revenue recognition under Ind AS 115 occurred in April 2027. In which period should the carrying amount of these vehicles be recognised as an expense under Ind AS 2?

The cost is expensed in April 2027. Ind AS 2 says that when inventories are sold, their carrying amount is recognised as an expense in the period in which the related revenue is recognised, which here is the delivery month, not the invoicing or production month.

  1. AMarch 2027, when the vehicles were invoiced
  2. BApril 2027, the period in which the related revenue is recognisedCorrect
  3. CThe period in which the vehicles were purchased or produced
  4. DMarch 2027, because the inventory left the warehouse

Explanation

Ind AS 2 requires the carrying amount of inventories sold to be recognised as an expense in the period in which the related revenue is recognised. Revenue arose in April 2027, so the Rs 2.4 crore cost (40 x 6,00,000) is expensed in April 2027. Expensing on invoicing or on production would break the matching of cost with revenue.

Did you get it right without looking?

One question tells you little. A timed set on Inventories (Ind AS 2) shows your real accuracy, how long you take and where you lose marks.

Practise Inventories (Ind AS 2)Free diagnostic mock

More Inventories (Ind AS 2) questions