Module 1: Valuation of Inventories PDF

MODULE 1. VALUATION OF INVENTORIES DR. MEENAL GAJANAN KHANDAKE M.COM, SET, NET, GDC&A , Ph. D [email protected] Mob no 8263928130  MODULE 1 VALUATION OF INVENTORIES  AS: 2 Valuation of Inventories ...

MODULE 1. VALUATION OF INVENTORIES DR. MEENAL GAJANAN KHANDAKE M.COM, SET, NET, GDC&A , Ph. D [email protected] Mob no 8263928130  MODULE 1 VALUATION OF INVENTORIES  AS: 2 Valuation of Inventories  Inventory systems : Periodic Inventory system and Perpetual Inventory System  Methods of Stock Valuation as per AS – 2 :  FIFO and Weighted Average Method Dr. Meenal Khandake 1 August 2023 2  Dr. Meenal Khandake 1 August 2023 MEANING AND DEFINITION  Inventories consist of the following:  1. Held for sale in the ordinary course of business (finished goods)  2. In the process of production of such sale (Raw Material and Work-in-progress)  3. In the form of materials or supplies to be consumed in the production process or in the rendering of services (stores, spares, consumables)  Inventories do not include machinery 3  Dr. Meenal Khandake 1 August 2023 VALUATION OF INVENTORIES Purchase Price Conversion Cost Cost Valuation of Other costs inventories Estimated Net Selling Price Realizable Less Cost of Value sale 4  Dr. Meenal Khandake 1 August 2023 COST OF CONVERSION Direct Material Direct Cost Direct Labour Cost of Direct Expenses Conversion Fixed Production O/h Indirect Cost Variable Production O/h 5  INVENTORY SYSTEMS  Periodic system  Perpetual inventory  Under this method, value of system stock is decided by  It is a system of records physically counting the stock maintained by the controlling at the end of the accounting department which reflects the year. physical movement of stocks  In large sized enterprises & their current balances. because of large volume of  It requires continuous records business, stock taking may keeping of all inflows and take even one week. outflows of inventory items. The inventory account is updated after each purchases or sale transaction. 1 August 2023 Dr. Meenal Khandake 6  FIRST IN FIRST OUT METHOD This method assumes that materials are issued for consumption in the same sequence as that in which it is received. Thus, rate applied to earliest received material in stock is the basis. Consequently the material in stock is valued at a price of later receipts. Thus, stock is valued at current or latest purchases. When this method is used, it is necessary to keep record of quantity and value of every receipt. Dr. Meenal Khandake 1 August 2023 7  WEIGHTED AVERAGE METHOD  This method overcomes the demerits of Simple average method. After every receipt of material the average rate is calculated by total value and quantity.  Thus, the value of issues and stock is always within the range of highest and lowest price paid. The issue and stock at a given time is valued at the same price. It avoids the price fluctuations. Value of material in stock + value of new receipt Weighted average rate = -------------------------------------------------- Quantity in stock + Quantity of new receipt 8 Dr. Meenal Khandake 1 August 2023