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CA Final · Financial Reporting · Ind AS 2 Inventories

Yamuna Steel Ltd produces a main product and a by-product. Joint processing costs for the month were Rs 9,00,000. The by-product is immaterial and is sold for a net realisable value of Rs 40,000. Which treatment is consistent with Ind AS 2?

An immaterial by-product is measured at its net realisable value, and that amount is deducted from the cost of the main product. Here the main product is carried at Rs 9,00,000 less Rs 40,000, that is Rs 8,60,000, so the main product's cost is not overstated.

  1. AMeasure the by-product at NRV of Rs 40,000 and deduct it from the cost of the main product, giving Rs 8,60,000 for the main productCorrect
  2. BAllocate the Rs 9,00,000 equally between the two products
  3. CRecognise the by-product at nil and charge the full Rs 9,00,000 to the main product
  4. DRecognise the Rs 40,000 as other income and keep the main product at Rs 9,00,000

Explanation

Most by-products are immaterial, and they are often measured at net realisable value, with that value deducted from the cost of the main product. The main product's carrying cost then becomes 9,00,000 - 40,000 = Rs 8,60,000. Treating the 40,000 as income leaves the main product overstated.

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