Navigating Accounting Standard 2 (AS 2): A Comprehensive Guide to Inventory Valuation

AS 2 Overview: AS 2 provides guidelines for inventory valuation in financial statements. Central principle: Inventories valued at lower of cost or market value. Key Concepts: Cost of Inventories: Includes purchase, conversion, and related expenses. Market Value: Replacement cost or net realizable value, whichever is lower.

Valuation Methods: FIFO, Weighted Average Cost, and Specific Identification. LIFO not permitted under Indian Accounting Standards. Disclosure Requirements: Mandates disclosure of inventory valuation policies and write-downs.

Applicability: Covers raw materials, work in progress, and finished goods. Exceptions include financial instruments and certain commodities. Valuation Process: Calculate inventory cost and net realizable value. Choose lower of cost or net realizable value.

Accounting Standard 2 (AS 2) for Businesses: Manufacturers and traders calculate opening stock, purchases, and sales. Ensures accurate financial reporting and tax compliance.