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Valuation of raw material

Gaurav Joshi (M.Com) (44 Points)

19 September 2012

Hello Experts,

I have one query that freight (carriage inward) which we are paying for bringing the raw material to our factory should be included in valuation of raw material or not..?

for example suppose i am purchasing a material cost rs. 100 on which i am paying freight rs. 20, so should i show rs 120 as purchase or rs. 100 only... and what should be followed while valuation of closing stock..?

what abt the CST/VAT, EXCISE etc on material...in both cases whether i am availing credit or not...?

Pls reply as soon as possible...thanks in advance.

Regards,

Gaurav

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5 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 19 September 2012

As per AS-2 Valuation of Inventories, Raw materials are also included in inventories.

as per the said standard all the cost incurred alongwith the purchase price to bring the inventoreis to their present location & condition are included in the cost of inventories and should be included while valuing the closing stock. As regards freight if it is incurred alongwith the raw materisl to bring them to their location then it shud be included in the cost of inventories.

In case of taxes/duties like Cenvat, VAT, Customs if they are recoverable subsequently from the tax authorities then the same should not form part of the inventories. They should be shown as Current Assets in teh B/S as you will be taking the credit of the taxes paid on purchase while discharing the liability on your sale.

However if youa re not availing any credit of the taxes paid as mentioend above then the same would form part of the cost of inventories.

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Gaurav Joshi (M.Com) (44 Points)
Replied 19 September 2012

sir,

Thank you for reply, but just let me be clear if the same as you mentioned, will apply in both the cases whether we are paying freight seprately to a transporter not to buyer or directly to buyer as he is arranging transportation..??

Regards,

Gaurav.