Under Indian Accounting Standards (Ind AS), cash discounts are generally considered a reduction of the purchase cost of inventory and are deducted from the cost of the inventory rather than added to it.
Reference: Ind AS 2, “Inventories”
Paragraph 11 of Ind AS 2 states that the cost of inventory should include all costs of purchase, costs of conversion, and other costs incurred in bringing the inventory to its present location and condition.
Paragraph 14 of Ind AS 2 specifically mentions that trade discounts and rebates should be deducted in determining the cost of purchase.
In the given scenario, the cash discount of 2 would be deducted from the cost of the inventory. The cost of the inventory would be calculated as follows:
Cost of Inventory = Cost of Purchase – Cash Discount
Cost of Inventory = 100 – 2 = 98
Therefore, in accordance with Ind AS 2, the cash discount would reduce the cost of the inventory to 98.
