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CA Final · Financial Reporting · Ind AS 2 Inventories

Yamuna Foods Ltd has raw sugar costing Rs 60 per kg, held to make sweets. Market price of raw sugar has fallen to Rs 52 per kg, but the finished sweets in which it will be used are expected to sell at or above their cost. How should the raw sugar be measured at the reporting date?

Raw sugar stays at its cost of Rs 60 per kg. Materials held for production are not written down below cost when the finished products they go into are expected to sell at or above cost, even if the material's market price has fallen.

  1. AAt cost of Rs 60 per kg, as the finished sweets are expected to sell at or above costCorrect
  2. BAt replacement cost of Rs 52 per kg in every case
  3. CAt Rs 56 per kg, being the average of cost and market price
  4. DAt zero, since the price has fallen

Explanation

Materials held for use in production are not written down below cost if the finished products in which they will be incorporated are expected to sell at or above cost. Since the sweets will recover cost, raw sugar stays at Rs 60. Writing down to Rs 52 would be required only if the finished goods were expected to sell below cost.

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