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Valuation of inventory

D20BFS036-Harshavardini K.B (7 Points)

09 September 2024

Hello all

If finished good are valued at nrv then raw materials should be valued at replacement cost.

What if RM cost 140 and Replacement cost is 170?

Should we still take 170 for valuation of closing stock of RM?

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Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (5616 Points)
Replied 12 September 2024

If the finished goods are valued at NRV (Net Realizable Value), then the raw materials should be valued at Replacement Cost. In this case, if the Raw Material (RM) cost is 140 and the Replacement Cost is 170, you should value the closing stock of RM at 170. Here's why: - Replacement Cost is the current market price to replace the RM. - Since the Replacement Cost (170) is higher than the original cost (140), it indicates that the RM's value has increased. - Valuing the closing stock at Replacement Cost (170) reflects the current economic reality and ensures that the financial statements accurately represent the company's financial position. However, if the Replacement Cost were lower than the original cost, you would value the closing stock at the lower value. Remember to consult with a financial expert or refer to relevant accounting standards (e.g., IAS 2 or Ind AS 2) for specific guidance on inventory valuation.

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Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (5616 Points)
Replied 12 September 2024

If the finished goods are valued at NRV (Net Realizable Value), then the raw materials should be valued at Replacement Cost. In this case, if the Raw Material (RM) cost is 140 and the Replacement Cost is 170, you should value the closing stock of RM at 170. Here's why: - Replacement Cost is the current market price to replace the RM. - Since the Replacement Cost (170) is higher than the original cost (140), it indicates that the RM's value has increased. - Valuing the closing stock at Replacement Cost (170) reflects the current economic reality and ensures that the financial statements accurately represent the company's financial position. However, if the Replacement Cost were lower than the original cost, you would value the closing stock at the lower value. Remember to consult with a financial expert or refer to relevant accounting standards (e.g., IAS 2 or Ind AS 2) for specific guidance on inventory valuation.

D20BFS036-Harshavardini K.B (7 Points)
Replied 13 September 2024

Thank you so much for spending time to resolve the doubt. Means a lot, Now i got clarity about the concept behind it.

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