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Accounting Standard 2

Select Specimen Disclosures

By January 13, 2023May 31st, 2024No Comments
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Disclosure under Significant Account Policies:

Specimen Disclosure 1 – Specific Identification Method

Inventories:

Raw materials are valued at cost on the basis of specific identifiable lots. Cost includes all taxes and duties, but is duly adjusted for GST and other benefits recoverable, where applicable. However, a downward adjustment is made when and to the extent that cost of finished products exceeds estimated net realizable value of such finished products, keeping the replacement price of materials as bench-mark cost. Imported materials and other inputs in transit, if any, are valued on CIF basis.

Work in process and Finished Goods are valued at lower of cost and estimated net realizable value.

Stores and spares pertaining to day-to-day maintenance held as inventory, including those in transit, are valued at cost on FIFO basis. Cost for this purpose does not include the element of tax benefits if subsequently recoverable.

Cost in these cases, comprises expenditure incurred in the normal course of business in bringing such inventories to their present location and condition and includes, where applicable, appropriate overheads based on normal level of activity. Net realisable value is the estimated selling price less estimated costs for completion and sale. Obsolete, slow moving, and defective inventories are identified from time to time and, where necessary, a provision is made for such inventories.

Classification of items of inventory is also given below:

Current year Previous Year

(Rupees in Lacs) 

Stores and spares164.18187.79
Raw and packing materials800.371017.70
Work in process127.44329.73
Finished Goods5075.833796.76
Etc. Etc.

Specimen 2 – FIFO

Inventories:

Raw materials are valued at cost on FIFO Basis. Cost includes all taxes and duties, but is duly adjusted for GST and other benefits recoverable, where applicable. Imported materials and other inputs in transit, if any, are valued on CIF basis.

Work in process and Finished Goods are valued at lower of cost and estimated net realizable value.

Stores and spares pertaining to day-to-day maintenance held as inventory, including those in transit, are valued at cost on FIFO basis. Cost for this purpose does not include the element of tax benefits if subsequently recoverable.

Cost in these cases, comprises expenditure incurred in the normal course of business in bringing such inventories to their present location and condition and includes, where applicable, appropriate overheads based on normal level of activity. Net realisable value is the estimated selling price less estimated costs for completion and sale. Obsolete, slow moving, and defective inventories are identified from time to time and, where necessary, a provision is made for such inventories.

Specimen 3 – Weighted Average Method 

Inventories:

Raw materials are valued at cost following Weighted Average Method. Cost includes all taxes and duties, but is duly adjusted for GST and other benefits recoverable, where applicable. Imported materials and other inputs in transit, if any, are valued on CIF basis.

Work in process and Finished Goods are valued at lower of cost and estimated net realizable value.

Stores and spares pertaining to day-to-day maintenance held as inventory, including those in transit, are valued at cost on FIFO basis. Cost for this purpose does not include the element of tax benefits if subsequently recoverable.

Cost in these cases, comprises expenditure incurred in the normal course of business in bringing such inventories to their present location and condition and includes, where applicable, appropriate overheads based on normal level of activity. Net realisable value is the estimated selling price less estimated costs for completion and sale. Obsolete, slow moving, and defective inventories are identified from time to time and, where necessary, a provision is made for such inventories.

SOME DISCLOSURES EXTRACTED FROM PUBLISHED ACCOUNTS 

ITC LIMITED – ANNUAL REPORT 2022

Inventories 

Inventories are stated at lower of cost and net realisable value. The cost is calculated on weighted average method. Cost comprises expenditure incurred in the normal course of business in bringing such inventories to their present location and condition and includes, where applicable, appropriate overheads based on normal level of activity. Net realisable value is the estimated selling price less estimated costs for completion and sale. 

Obsolete, slow moving, and defective inventories are identified from time to time and, where necessary, a provision is made for such inventories.

HINDUSTAN UNILEVER LIMITED – ANNUAL REPORT 2022

Inventories are valued at the lower of cost and net realisable value. Cost is computed on a weighted average basis. 

Cost of raw materials and stores and spares includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. The aforesaid items are valued at net realisable value if the finished products in which they are to be incorporated are expected to be sold at a loss. 

Cost of finished goods and work-in-progress include all costs of purchases, conversion costs and other costs incurred in bringing the inventories to their present location and condition. The net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale. 

As at 31st March 2022As at 31st March 2021
Raw materials [includes in transit: `74 crores (31st March, 2021: `69 crores)]1,7811,314
Packing materials [includes in transit: `1 crore (31st March, 2021: `1 crore)]127118
Work-in-progress421442
Finished goods [includes in transit: `60 crores (31st March, 2021: `58 crores)] (Refer note (a) below)1,6501,607
Stores and spares11798
Total4,0963,579

(a) Finished goods includes good purchased for re-sale, as both are stocked together. 

(b) During FY 2021-22 an amount of `156 crores (31st March, 2021: `203 crores) was charged to the consolidated statement of profit and loss on account of damaged and slow moving inventory. The reversal on account of above during the year amounted to `0 crore (31st March, 2021: `2 crores)

TATA MOTORS LIMITED – ANNUAL REPORT 2022

Inventories:

(a) Accounting policy: 

Inventories are valued at the lower of cost and net realisable value. Cost of raw materials, components and consumables are ascertained on a moving weighted average basis. Cost, including fixed and variable production overheads, are allocated to workin-progress and finished goods determined on a full absorption cost basis. Net realisable value is the estimated selling price in the ordinary course of business less estimated cost of completion and selling expenses. 

(b) Inventories consist of the following: 

As at 31st March 2022As at 31st March 2021
(a) Raw materials and components1,263.952,063.96
(b) Work-in-progress427.66523.34
(c) Finished goods1,786.871,486.93
(d) Stores and spare parts135.22177.91
(e) Consumable tools21.1535.23
(f) Goods-in-transit – Raw materials and components83.64264.34
Total3,718.494,551.71

During the year ended March 31, 2022 and 2021, the Company recorded inventory write-down expenses of `25.25 crores and `40.16 crores, respectively. 

Cost of inventories (including cost of purchased products) recognized as expense during the year ended March 31, 2022 and 2021 amounted to ` 43,334.20 crores and ` 44,043.06 crores, respectively.

Note : (This information should be viewed and understood with care as these entities are governed by prescriptions in Ind AS Standards)

  • Know more about inventory valuation principles, including cost components like purchase and conversion, methods such as FIFO and Weighted Average Cost, and disclosure rules in Understanding Accounting Standard 2Click here
  • Explore common queries regarding inventories, covering diverse scenarios such as accounting treatment for crude oil in pipelines, trading in cryptocurrency, holding shares or debentures as stock in trade, and more, in the FAQs– Click here
  • Assess the compliance and audit checklist for inventories, ensuring adherence to accounting policies, valuation principles, cost determination accuracy, cost formula adoption, NRV estimation, and disclosure adequacy as per AS 2- Click here
CA. S D Bala

Chartered Accountant, Author and Accounting Standard Expert

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