Ind AS 2, Inventories, provides guidance on the accounting treatment and valuation of inventories. It applies to all entities that hold inventories for sale, production, or use in the ordinary course of business. The standard defines inventories as assets held for the purpose of being sold, used in production, or consumed in the process of rendering services. It sets out the principles for the recognition, measurement, and disclosure of inventories in the financial statements.
Ind AS 2 requires inventories to be measured at the lower of cost and net realizable value. Cost is determined using the specific identification, first-in, first-out (FIFO), or weighted average cost methods. It includes all costs directly attributable to bringing the inventories to their present location and condition, such as purchase costs, conversion costs, and other costs incurred in handling and storing the inventories. Net realizable value is the estimated selling price less any estimated costs to complete and sell the inventories.
The standard also provides guidance on the subsequent measurement of inventories, including the recognition of any write-downs to net realizable value and subsequent reversals of such write-downs under certain circumstances. It requires entities to disclose the accounting policies used for inventories, as well as the carrying amount of inventories, the carrying amount of inventories carried at fair value less costs to sell, and the amount of any write-downs.
