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Inventories

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..... vity and agricultural produce at the point of harvest (See Ind AS 41, Agriculture). 3 This Standard does not apply to the measurement of inventories held by: (a) producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realisable value in accordance with well-established practices in those industries. When such inventories are measured at net realisable value, changes in that value are recognised in profit or loss in the period of the change. (b) commodity broker-traders who measure their inventories at fair value less costs to sell. When such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of the change. 4 The inventories referred to in paragraph 3(a) are measured at net realisable value at certain stages of production. This occurs, for example, when agricultural crops have been harvested or minerals have been extracted and sale is assured under a forward contract or a government guarantee, or when an active market exists and there is a negligible risk of fai .....

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..... m Contracts with Customers .] Measurement of inventories 9 Inventories shall be measured at the lower of cost and net realisable value. Cost of inventories 10 The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of purchase 11 The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. Costs of conversion 15 [ 12 The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constan .....

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..... n and condition. For example, it may be appropriate to include non-production overheads or the costs of designing products for specific customers in the cost of inventories. 16 Examples of costs excluded from the cost of inventories and recognised as expenses in the period in which they are incurred are: (a) abnormal amounts of wasted materials, labour or other production costs; (b) storage costs, unless those costs are necessary in the production process before a further production stage; (c) administrative overheads that do not contribute to bringing inventories to their present location and condition; and (d) selling costs. 17 Ind AS 23, Borrowing Costs, identifies limited circumstances where borrowing costs are included in the cost of inventories. 18 An entity may purchase inventories on deferred settlement terms. When the arrangement effectively contains a financing element, that element, for example a difference between the purchase price for normal credit terms and the amount paid, is recognised as interest expense over the period of the financing. Cost of inventories of a service provider 9 [***] Cost of agricultural produce harvested fr .....

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..... ty. For inventories with a different nature or use, different cost formulas may be justified. 26 For example, inventories used in one operating segment may have a use to the entity different from the same type of inventories used in another operating segment. However, a difference in geographical location of inventories (or in the respective tax rules), by itself, is not sufficient to justify the use of different cost formulas. 27 The FIFO formula assumes that the items of inventory that were purchased or produced first are sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the entity. Net realisable value 28 The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially .....

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..... net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value. 33 A new assessment is made of net realisable value in each subsequent period. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down is reversed (ie the reversal is limited to the amount of the original write-down) so that the new carrying amount is the lower of the cost and the revised net realisable value. This occurs, for example, when an item of inventory that is carried at net realisable value, because its selling price has declined, is still on hand in a subsequent period and its selling price has increased. Recognition as an expense 34 When inventories are sold, the carrying amount of those inventories shall be recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losse .....

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..... ange in inventories for the period. 13 [ *Effective Date 40 * 40A * 40B * 40C * 40D * 40E As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers , paragraphs 2, 8, 29, 37 are amended. An entity shall apply those amendments when it applies Ind AS 115.] 16 [ 40F Omitted* (*Refer Appendix 1) 40G Ind AS 116 amended paragraph 12. An entity shall apply that amendment when it applies Ind AS 116. ] Appendix A References to matters contained in other Indian Accounting Standards This Appendix is an integral part of the Ind AS. This appendix lists the appendix which is a part of another Indian Accounting Standard and makes reference to Ind AS 2, Inventories. 1 Appendix A, Intangible Assets-Web site Costs, contained in Ind AS 38, Intangible Assets. 2 Appendix B, Stripping Costs in the Production Phase of a Surface Mine, contained in Ind AS 16, Property, Plant and Equipment Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appen .....

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..... [Refer Appendix 1] 4. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, 29 Inventories are usually written down to net realisable value item by item. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses, are produced and marketed in the same geographical area, and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write inventories down on the basis of a classification of inventory, for example, finished goods, or all the inventories in a particular operating segment. 5. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, 37 Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are merchandise, production supplies, materials, work in progress and finished goods. .....

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..... ost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs. 11. Substituted vide F. No. 01/01/2009-CL-V(Part VI) Dated 28-03-2018 , w.e.f. 1st day of April, 2018, before it was read as, 4 [29. Inventories are usually written down to net realisable value item by item. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses, are produced and marketed in the same geographical area, and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write inventories down on the basis of a classification of inventory, for example, finished goods, or all the inventories in a particular operating segment. Service providers generally accumulate costs in respect of each service for which a separate selling price is charged. Therefore, each such service is treated as a separate item.] .....

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