Page 5 - 7. COMPILER QB - INDAS 2

Fixed factory selling overhead = Rs. 50,00,000;

Variable factory selling overhead = Rs. 150 per unit.

Calculate the value of inventory per unit in accordance with Ind AS 2. What will be the treatment of fixed
manufacturing overhead?

SOLUTION

Calculation of Inventory value per unit as per Ind AS 2:

Particulars Value per unit
(Rs.)
Raw material 200

Labour 100
Variable manufacturing overhead 100

Fixed production overhead (1,00,00,000/1,00,000) 100
500

Fixed overheads are absorbed based on normal capacity level, i.e.; 1,00,000 units, rather than on the basis of

actual production, i.e.; 50,000 units. Therefore, fixed manufacturing overhead on 50,000 units, will be absorbed
as inventory value. The remaining fixed manufacturing overhead Rs. 50,00,000 (1,00,00,000 - 50,00,000) will be

charged to P&L.

Note: Selling costs are excluded from the cost of inventories and recognised as expenses in the period in

which they are incurred.

Q4 (May. 21 & Also Added in New ICAI Module for May 22 Onwards)

On 1 January 20X1 an entity accepted an order for 7,000 custom-made corporate gifts.
On 3 January 20X1 the entity purchased raw materials to be consumed in the production process for Rs.

5,50,000, including Rs. 50,000 refundable purchase taxes. The purchase price was funded by raising a loan of
Rs. 5,55,000 (including Rs. 5,000 loan-raising fees). The loan is secured by the inventories.
During January 20X1 the entity designed the corporate gifts for the customer.
Design costs included:
● cost of external designer = Rs.7,000; and
● labour = Rs. 3,000.

During February 20X1 the entity‖s production team developed the manufacturing
technique and made further modifications necessary to bring the inventories to the conditions specified in the
agreement. The following costs were incurred in the testing phase:
● materials, net of Rs. 3,000 recovered from the sale of the scrapped output = Rs.21,000;
● labour = Rs. 11,000; and

● depreciation of plant used to perform the modifications = Rs.5,000.
During February 20X1 the entity incurred the following additional costs in manufacturing the customised
corporate gifts:
● consumable stores = Rs. 55,000;
7. 4