TMI BlogII - Valuation of inventories (w.e.f. AY 2017-18)X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and Disclosure Standard, the provisions of the Act shall prevail to that extent. Scope 1. This Income Computation and Disclosure Standard shall be applied for valuation of inventories, except: ( a ) Work-in-progress arising under 'construction contract' including directly related service contract which is dealt with by the Income Computation and Disclosure Standard on construction contracts; ( b ) Work-in-progress which is dealt with by other Income Computation and Disclosure Standard; ( c ) Shares, debentures and other financial instruments held as stock-in-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale. 2(2) Words and expressions used and not defined in this Income Computation and Disclosure Standard but defined in the Act shall have the meanings assigned to them in that Act. Measurement 3. Inventories shall be valued at cost, or net realisable value, whichever is lower. Cost of Inventories 4. Cost of inventories shall comprise of all costs of purchase, costs of services, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of Purchase 5. The costs of purchase shall consist of purchase price including duties and taxes, freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be recognised as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed production overheads allocated to each unit of production is decreased so that inventories are not measured above the cost. Variable production overheads shall be assigned to each unit of production on the basis of the actual use of the production facilities. 9. Where a production process results in more than one product being produced simultaneously and the costs of conversion of each product are not separately identifiable, the costs shall be allocated between the products on a rational and consistent basis. Where by-products, scrap or waste material are immaterial, they shall be measured at net realisabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterchangeable; and ( ii ) goods or services produced and segregated for specific projects shall be assigned by specific identification of their individual costs. 14. 'Specific identification of cost' means specific costs are attributed to identified items of inventory. 15. Where there are a large numbers of items of inventory which are ordinarily interchangeable, specific identification of costs shall not be made. First-in First-out and Weighted Average Cost Formula 16. Cost of inventories, other than the inventory dealt with in paragraph 13, shall be assigned by using the First-in First-out (FIFO), or weighted average cost formula. The formula used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sales value of the inventory, the appropriate percentage gross margin. The percentage used takes into consideration inventory, which has been marked down to below its original selling price. An average percentage for each retail department is to be used. Net Realisable Value 19. Inventories shall be written down to net realisable value on an item-by-item basis. Where 'items of inventory' relating to the same product line having similar purposes or end uses and are produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line, such inventories shall be grouped together and written down to net realisable value on an aggregate basis. 20. Net realisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Inventory 23. The method of valuation of inventories once adopted by a person in any previous year shall not be changed without reasonable cause. Valuation of Inventory in Case of Certain Dissolutions 24. In case of dissolution of a partnership firm or association of person or body of individuals, notwithstanding whether business is discontinued or not, the inventory on the date of dissolution shall be valued at the net realisable value. Transitional Provisions 25. Interest and other borrowing costs, which do not meet the criteria for recognition of interest as a component of the cost as per para 11, but included in the cost of the opening inventory as on the 1st day of April, 2016, shall be taken into account for de ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
