Inventory Valuation
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PRESENTATION OUTLINE
WHAT IS INVENTORY
- Goods held for resale purpose
- Inventory valuation is done at end of every financial year
- To calculate the cost of goods sold and cost of unsold inventory
HOW IS INVENTORY VALUED?
- IAS 2
- Inventories are valued at lower of cost and net realisable value
- Why?
- Not to overstate inventories
- Not to overstate profits
- According to prudence concept
- Not to overstate assets (inventory is found under current assets)
WHAT TO INCLUDE IN COSTS OF INVENTORIES
- Costs of purchase
- Costs of conversion
- Other costs incurred to bring inventory to present location and condition
WHAT IS NET REALISABLE VALUE
- NRV = estimated selling price - estimated costs to make the sale
