Page 12 - 7. COMPILER QB - INDAS 2

of materials or supplies to be consumed in the production process or in the rendering of services. Therefore,
the inverter panel held in its stock will be considered as its inventory. Further, as per the standard, inventory
at the end of the year is to be valued at lower of cost or NRV.

As the customer has postponed the delivery schedule due to liquidity crunch the entire cost incurred for
inverter panels which were to be supplied has been shown in Inventory. The inverter panels are in the
possession of the Company which can be sold in the market. Hence company should value such inventory as
per principle laid down in Ind AS 2 i.e. lower of Cost or NRV. Though the goods were produced as per
specifications of the buyer, the Company should determine the NRV of these goods in the market and value

the goods accordingly. Change in value of such inverter panel should be provided for in the books.
In the absence of the NRV of WIP and Finished product given in the question, assuming that cost is lower,
the company shall value its inventory as per Ind AS 2 at ₨ 420 lakhs [i.e. inverter panel (WIP) ₨ 255
lakhs + inverter panel (finished products) ₨ 165 lakhs].

Alternatively, if it is assumed that there is no buyer for such fabricated inverter panels, then the NRV will be
Nil. In such a case, full value of finished goods and WIP will be provided for in the books.

As regards balance of Sundry Debtors, since the Company has filed a petition for winding up against the
customer in 2019-2020, it is probable that amount is not recoverable from the party. Hence, the provision for
doubtful debts for 195 lakhs shall be made in the books against the amount of debtors.

Q11 (December 21 – 5 Marks) (Similar to Q6)

In a manufacturing process of Saturn Ltd, one by-product BP emerges besides two main products MP1 and
MP2 apart from scrap. Details of cost of production process for FY 202021 are here under:
Item Amount (Rs) Output (units) Closing Stock

31.03.2021
Raw material 6,00,000 MP 1-20,000 units 1,000
Wages 3,60,000 MP II - 16,000 units 400

Fixed overhead 2,60,000 BP- 8,000 units
Variable overhead 2,00,000

Average market price of MP1 and MP2 is Rs 45 per unit and Rs 37.50 per unit respectively, by-product is sold
@ Rs 10 per unit. All units of buy-product BP are sold after incurring separate processing charges of Rs
32,000 and packing charges of Rs 8,000, Rs 20,000 was realised from sale of scrap. Calculate the value of
closing stock of MP1 and MP2 as on 31.3.2020.21. Allocate joint cost based on the relative sales value of each
product.

SOLUTION
As per Ind AS 2 ―Inventories‖, most by-products as well as scrap or waste materials, by their nature, are

immaterial. They are often measured at net realizable value and this value is deducted from the cost of the
main product.

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