Ind AS 2


  • Accounting treatment for inventories
  • Amount of cost of inventory to be recognised as an asset
  • Initial recognition
  • Guidance on Cost Formulas
  • Applies to all inventories except Financial Instruments and biological asset.
  • Does not apply to the measurement of inventories held by agriculture producers and commodity trade brokers.
  1. Inventories
  2. NRV
  3. FV

Inventories: Are assets;

  1. Held for sale in the ordinary course of business;
  2. In the process of production for such sale; or
  3. In the form of materials or supplies to be consumed in the production process or in the rendering of services

NRV: Is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

FV: Is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

At lower of cost and NRV

Cost of Inventories (COI) – all cost of purchase, cost of conversion, other cost incurred to bring inventories to present location and condition

  • Cost excluded from COI- recognise as expenses
  • Cost of Purchase – Includes purchase price, import duties and other taxes and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services
    • Deduct trade discounts, rebates and other similar items
  • Cost of Conversion
    • Costs directly related to the units of production, such as direct labour
    • Systematic allocation of fixed and   variable   production   overheads
    • Fixed production overhead (also in case of joint product and by-product) are allocated on the basis of capacity utilisation
  • Other Cost – Borrowing cost is included in the cost of inventories as per Ind AS 23
  • Techniques for the measurement of the cost inventories – standard cost method or retail method
  • Cost Formulas
    • Specific identification when inventories are not ordinarily interchangeable
    • Use FIFO or weighted average method when specific identification is not possible
  • Accounting policies adopted in measuring inventories, including the cost formula used
  • Total carrying amount of inventories and carrying amount in classifications appropriate to the entity
  • Carrying amount of inventories carried at fair value less costs to sell
  • Amount of inventories recognised as an expense during the period
  • Amount of any write-down of inventories recognised as an expense in the period in accordance with paragraph 34
  • Amount of any reversal of any write-down that is recognised as a reduction in the amount of inventories recognised as expense in the period in accordance with para 34
  • Circumstances or events that led to the reversal of a write-down of inventories in accordance with para 34
  • Carrying amount of inventories pledged as security for liabilities
Inventories are sold Any write-down of inventories to NRV and all losses of inventories The amount of reversal of any write-down of inventories, arising from an increase in NRV
Recognised as an expense Recognised as an expense Recognised as a reduction in the amount of inventories recognised as an expense
When related revenue is recognised When the write-down or loss occurs When the reversal occurs



Use Ind AS Lab Services

Contact Us

Send us an email and we'll get back to you, asap.

Not readable? Change text.