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CA Intermediate · Advanced Accounting · AS 2 Valuation of Inventory

Sunrise Traders Pvt. Ltd., Pune, bought goods with a list price of ₹5,00,000 and received a 10% trade discount. GST of 18% was charged and is fully recoverable as input tax credit. The company paid ₹12,000 freight inward and ₹8,000 non-refundable import duty. After the goods reached the warehouse it also paid ₹5,000 for storage, which was not needed to bring the goods to their present condition. At what amount should the goods be included in the cost of inventory under AS 2?

The cost is ₹4,70,000. AS 2 includes the purchase price net of trade discount (₹4,50,000), plus freight inward and non-refundable duties (₹20,000). Recoverable GST is not a cost, and storage costs not necessary to bring the goods to their present condition are excluded from inventory cost.

  1. A₹4,75,000
  2. B₹4,70,000Correct
  3. C₹5,20,000
  4. D₹5,51,000

Explanation

Net purchase price = 5,00,000 less 10% = 4,50,000. Add freight inward 12,000 and non-refundable duty 8,000 to get 4,70,000. Recoverable GST is excluded. Storage costs not necessary to bring inventory to its present location and condition are excluded; adding the 5,000 gives the wrong figure of 4,75,000.

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