Page 10 - 7. COMPILER QB - INDAS 2

Further, Ind AS 2 defines:
“Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs

of completion and the estimated costs necessary to make the sale”.

Further, Ind AS 2 states that:
“Inventories shall be measured at the lower of cost and net realisable value”.
Accountant of Jupiter Ltd. has re-measured the inventories after adjusting the event in its financial statement

which is not correct and nor in accordance with provision of Ind AS 2 and Ind AS 10.
Accordingly, the event causing the damage to the inventory occurred after the reporting date and as per the
principles laid down under Ind AS 10 ―Events After the Reporting Date‖ is a non-adjusting event as it does not
affect conditions at the reporting date. Non-adjusting events are not recognised in the financial statements,
but are disclosed where their effect is material.

Therefore, as per the provisions of Ind AS 2 and Ind AS 10, the consignment of inventories shall be recorded
in the Balance Sheet at a value of Rs. 8 lakhs calculated below:
Rs.’ Lakhs
Cost 8.00
Net realisable value 9.60
Inventories (lower of cost and net realisable value) 8.00

Q8 (April. 21)

State the major changes in Ind AS 2 vis-a-vis AS 2 in respect of the following namely:
(i) Machinery Spares
(ii) Subsequent assessment of Net Realisable value
(iii) Cost Formulae

SOLUTION

The major changes in Ind AS 2 vis-à-vis AS 2 with respect to following are as follows:
(i) Machinery Spares: AS 2 explains that inventories do not include spare parts, servicing equipment and
standby equipment which meet the definition of property, plant and equipment as per AS 10, Property,
Plant and Equipment. Such items are accounted for in accordance with AS 10. Ind AS 2 does not contain

specific explanation in respect of such spares as this aspect is covered under Ind AS 16.
(ii) Subsequent Assessment of Net Realisable Value (NRV): Ind AS 2 provides detailed guidance in case of
subsequent assessment of net realisable value. It also deals with the reversal of the write-down of
inventories to net realisable value to the extent of the amount of original write-down, and the recognition
and disclosure thereof in the financial statements. AS 2 does not deal with such reversal.
(iii) Cost Formulae: AS 2 specifically provides that the formula used in determining the cost of an item of

inventory should reflect the fairest possible approximation to the cost incurred in bringing the items of
inventory to their present location and condition whereas Ind AS 2 does not specifically state so and
requires the use of consistent cost formulas for all inventories having a similar nature and use to the
entity.

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