AS 2 states that "Inventories should be valued at the lower of cost and net realisable value" but why is it not 'lower of cost or net realisable value'.
Is there any specification for this?
4 Replies
Urvashi Saini
(Difference between Peak Performers & everyone else is what "everyone else" thinks)
(1494 Points)
Replied 31 October 2012
From my point of view
there are various methods for valuation of inventory , so it is specified by AS to go for two of them...
Value them either at cost or at NRV whichever is lower...to bring comparability & prudency.
Correct me if i'm wrong !
Deepak kumar sharma
(Govt. job)
(2946 Points)
Replied 31 October 2012
you are just getting confused in language. "lower of" is a comparative degree which compares two items jointed by conjunction "and". "or" is not applied when "lower of" used
Here lower of cost and NRV means "whichever is lower both of them"
You can't say lower of cost or NRV because "or" separates them
(Guest)
Hi Giya,
I am happy that you have raised a good question on AS 2. As per para 5 which stated below as you said rightly
5. Inventories should be valued at the lower of cost and net realisable
value.
The intention of this standard is to consider both cost and net realisable value, from these lower amount is considered for valuation of inventory. If you say or , then the word lower has no meaning at all.
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