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Valuation of Finished Goods and Work In Progress (WIP)
Inventories in form of finished goods and WIP are required to be
stated at the lower of cost and net realisable value (NRV).
Valuation of Raw Material
Case-I
Raw materials are stated at the cost, if NRV of finished goods in
which such raw materials used are more than the cost of finished
goods.
Case-II
Raw materials are stated at the lower of cost of raw materials and
NRV of finished goods, if NRV of finished goods in which such raw
materials used are less than the cost of finished goods.
Reversal arising from an increase in NRV in the subsequent
period is not allowed.
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Valuation of All Inventories
All inventories are required to be stated at the lower of cost and
NRV.
Increase in the NRV in subsequent period
Reversals arising from an increase in NRV are recognised as a
reduction of the inventories expense in the period in which they
occur.
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Cost of Inventories
Cost of inventories includes purchase cost (material, labour,
overhead) and other cost to bring inventory to its present location
and conditions. Interest and other borrowing costs are usually not
include in cost of inventories.
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Purchase of inventories on deferred settlement terms, excess payment
over normal price is to be accounted as interest over the life of
financing. Foreign exchange fluctuation gain or loss can not be
considered as inventories cost.
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Cost Formulas
For items that are not ordinarily interchangeable, specific cost
are segregated to the individual items of inventories. For other items
cost are segregated on First in First out and weighted average basis.
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SAME AS AS-2 (VALUATION OF INVENTORIES)
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