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7/17/2012   accounting standard 2                                    1
7/17/2012   accounting standard 2                                    2
7/17/2012   accounting standard 2                                    3
7/17/2012   accounting standard 2                                    4
5                           7/17/2012accounting standard 2WORK    IN PROGRESS   RAW MATERIALSFINISHED GOODS
SCOPE                                                      7/17/2012  Work in progress arising under construction         ...
7/17/2012   accounting standard 2                                                               7Measurement of Inventory
7/17/2012   accounting standard 2                                    8
7/17/2012   accounting standard 2                                    9
An enterprise ordered 13000 Kgof certain material at Rs.90/unit.The purchase price includes                               ...
Purchase price (13000Kg x Rs:90)                      11,70,000Less:CENVAT Credit (13,000 Kg. x Rs:5)                  65,...
7/17/2012   accounting standard 2                                    12
In the previous example suppose normalprocessing loss is 5% of input.During the accounting period , theenterprise has actu...
Solution:-Normal recovery rate=Rs.2,23,440/9400units=Rs.23.77Actual Overheads p.u.=Rs.2,23,440/9600units=Rs.23.275Recovery...
7/17/2012   accounting standard 2                                    15
7/17/2012   accounting standard 2                                             16COST FORMULA
Specific Identification Used   where items of inventory are dissimilar  and not interchangeable Feasible when inventory ...
Inventory Cost Flow Assumptions                                   7/17/2012  Purchased    goods                           ...
Inventory Cost Flow Assumptions                                   7/17/2012                                   accounting s...
Inventory Cost Flow Assumptions                                   7/17/2012                                   accounting s...
Techniques Of Cost Measurement                                  7/17/2012                                  accounting stan...
STANDARD COST METHOD Uses ratios called efficiency                                                                7/17/20...
RETAIL METHOD                                       7/17/2012 Use   in retail trade/ industry                            ...
NET REALISABLE VALUE                                               7/17/2012                                              ...
An enterprise prefers to incorporate                                                                 24      materials in ...
7/17/2012   accounting standard 2                                    26
Case studyRaw material inventory of a company                                                    7/17/2012includes 1 Kg. o...
7/17/2012SELLING PRICE:          RS 195   RS 230                                                   accounting standard 2IN...
7/17/2012 Accounting   policy adopted in measuring  including cost formula used,                                         ...
BIBILOGRAPHY                           7/17/2012     • STUDY MATERIAL        IPCC ACCOUNTANCY                           ac...
7/17/2012   accounting standard 2                                    31
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  1. 1. 7/17/2012 accounting standard 2 1
  2. 2. 7/17/2012 accounting standard 2 2
  3. 3. 7/17/2012 accounting standard 2 3
  4. 4. 7/17/2012 accounting standard 2 4
  5. 5. 5 7/17/2012accounting standard 2WORK IN PROGRESS RAW MATERIALSFINISHED GOODS
  6. 6. SCOPE 7/17/2012 Work in progress arising under construction accounting standard 2 contracts Work in progress arising in service provider Financial Producers of agricultural and forest products 6
  7. 7. 7/17/2012 accounting standard 2 7Measurement of Inventory
  8. 8. 7/17/2012 accounting standard 2 8
  9. 9. 7/17/2012 accounting standard 2 9
  10. 10. An enterprise ordered 13000 Kgof certain material at Rs.90/unit.The purchase price includes 7/17/2012excise duty Rs.5 per kg ,in respectof which full CENVAT credit is accounting standard 2admissible. Freight incurredamounted to Rs.80600. Normaltransit loss is 4%. The enterpriseactually received 12400Kg andconsumed 10000 Kg.What is cost of inventory ? 10
  11. 11. Purchase price (13000Kg x Rs:90) 11,70,000Less:CENVAT Credit (13,000 Kg. x Rs:5) 65,000 11,05,000 7/17/2012Add: Freight 80,600 accounting standard 2A. Total material cost 11,85,600B. Number units normally received=96% of 13,000 Kg. Kg. 12,480C. Normal cost per Kg. 95 11Cost of inventory(2,400 x 95) 2,28,000
  12. 12. 7/17/2012 accounting standard 2 12
  13. 13. In the previous example suppose normalprocessing loss is 5% of input.During the accounting period , theenterprise has actually produced 9600units of finished product.9300 unitswere sold at Rs.250 p.u. The labour andoverheads costs amounted to Rs.612845and Rs. 223440.Overheads are recovered on the basisof output. Excise duty on final productis Rs.28.50 p.u. 13Find cost of inventory assuming normalcapacity is 9400 units.
  14. 14. Solution:-Normal recovery rate=Rs.2,23,440/9400units=Rs.23.77Actual Overheads p.u.=Rs.2,23,440/9600units=Rs.23.275Recovery rate is decreased to actual Rs.23.275 p.u. due 7/17/2012to high production. accounting standard 2 Materials consumed 9,50000 Wages 6,12,845 Overheads(9600xRs.23.275) 2,23,440 Excise Duty(9600xRs.28.50) 2,73,600 Total cost 20,59,885 Normal output 9500units Normal cost p.u 216.83 Cost of inventory 65,049 14
  15. 15. 7/17/2012 accounting standard 2 15
  16. 16. 7/17/2012 accounting standard 2 16COST FORMULA
  17. 17. Specific Identification Used where items of inventory are dissimilar and not interchangeable Feasible when inventory items are uniquely identifiable and of sufficient value to keep detailed records 17 7/17/2012 accounting standard 2
  18. 18. Inventory Cost Flow Assumptions 7/17/2012 Purchased goods accounting standard 2 Sold goods 18
  19. 19. Inventory Cost Flow Assumptions 7/17/2012 accounting standard 2 Sold Purchased goods goods 19
  20. 20. Inventory Cost Flow Assumptions 7/17/2012 accounting standard 2 Purchased Sold goods goods 20
  21. 21. Techniques Of Cost Measurement 7/17/2012 accounting standard 2 21
  22. 22. STANDARD COST METHOD Uses ratios called efficiency 7/17/2012 Standard costs take into account normal levels of consumption of materials and supplies, labour efficiency and capacity utilization. accounting standard 2 Developed above 100 years ago Under this method, the cost of goods sold is calculated at the standard cost and at the end. 22
  23. 23. RETAIL METHOD 7/17/2012 Use in retail trade/ industry accounting standard 2 Basic Retailing Formula Cost of Goods + Mark up = RetailPrice Retail Price - Cost of Goods =Mark up Retail Price - Mark up = Cost ofGoods 23
  24. 24. NET REALISABLE VALUE 7/17/2012 accounting standard 2Net Realizable Value =Estimated selling – Estimated cost necessaryprice to make sale. 24
  25. 25. An enterprise prefers to incorporate 24 materials in finished products when : 7/17/2012 INCREMENTAL REVENUE >CURRENT PRICE OF BY MAKING MATERIAL accounting standard 2Or When :(Selling Price Of – Cost To Make) > Current Price Of Material Finished GoodsOr When :(Selling Price Of – Cost To Make) > Current Price Of Material Finished GoodsOr When :Selling Price Of Finished > Relevant cost of finished productsGoods
  26. 26. 7/17/2012 accounting standard 2 26
  27. 27. Case studyRaw material inventory of a company 7/17/2012includes 1 Kg. of certain material purchasedat Rs:100 per Kg. The price of the material is accounting standard 2on decline and replacement cost of theinventory at the year-end is Rs:80 per Kg. It ispossible to incorporate the material in afinished product. The conversion cost is Rs:120Inventory values for expected selling pricesof the finished product (a) Rs:195 and (b)Rs:230are shown belowIn all cases, current price ofmaterial(Rs:80)is less than material cost 27Rs:100
  28. 28. 7/17/2012SELLING PRICE: RS 195 RS 230 accounting standard 2INCREMENTAL REVENUE: RS 75 RS 110CURRENT PRICE OF RS 80MATERIALS: RS 50NET REALISABLE VALUE: RS 80 RS110COST OF MATERIAL: RS 100 RS 100VALUE OF INVENTORY: RS 80 RS 100 28
  29. 29. 7/17/2012 Accounting policy adopted in measuring including cost formula used, accounting standard 2 Total carrying cost of inventories and its classification. 29
  30. 30. BIBILOGRAPHY 7/17/2012 • STUDY MATERIAL IPCC ACCOUNTANCY accounting standard 2 VOL.130 • WWW.SIKACA.COM
  31. 31. 7/17/2012 accounting standard 2 31
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