Comparison chart of ICDS II, AS-2 & IndAS-2 - Income Tax - Ready Reckoner - Income Tax

Topic ICDS Indian GAAP Ind AS Inventories ICDS II relating to valuation of inventories AS 2 - Valuation of Inventories Ind AS 2 Inventories Scope This Standard shall be applied for valuation of inventories, except: a.) Work-in-progress arising under construction contract including directly related service contract which is dealt with by the ICDS relating to construction contracts; b). Work-in-progress which is dealt with by other ICDS; c.) Shares, debentures and other financial instruments held as stock-in-trade which are dealt with by the ICDS relating to securities; d.) Producers inventories of livestock, agriculture and forest products, mineral oils, ores and gases to the extent that they are measured at net realisable value; e.) Machinery spares, which can be used only in connection with a tangible fixed asset and their use is expected to be irregular, shall be dealt with in accordance with ICDS relating to tangible fixed assets. There is no scope exemption in AS 2 for any inventories held by commodity traders. Further, AS 2 totally excludes from its scope (and not just measurement requirements) producers inventories of livestock, agricultural and forest products, and mineral oils, ores and gases to the extent that they are measured at net realisable value in accordance with well-established practices in those industries. Work in progress arising under construction contracts, including directly related service contracts and work in progress arising in the ordinary course of business of service providers have been scoped out of AS 2 Measurement requirements of Ind AS 2 do not apply to inventories held by commodity broker-traders who measure their inventories at fair value less costs to sell and producers of agricultural and forest products, agricultural produce after harvest and minerals and mineral products to the extent that they are measured at net realisable value in accordance with well-established practices in those industries. The standard also scopes out the biological assets related to agricultural activity and agricultural produce at the point of harvest. Changes in fair value less costs to sell/ changes in net realisable value are recognised in profit or loss in the period of the change Cost formula The Cost of inventories of items (i) that are not ordinarily interchangeable; and (ii) goods or services produced and segregated for specific projects shall be assigned by specific identification of their individual costs. Cost of inventories, other than the inventory dealt with above, shall be assigned by using the First-in First-out (FIFO), or weighted average cost formula. The formula used shall reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. Retail method is permitted as technique for measurement of cost if it is impracticable to use FIFO or Weighted Average Cost Formula It is not expressly mandated to use the same cost formula consistently for all inventories that have a similar nature and use to the entity. The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition Techniques such as standard cost or retail method may be used for convenience, if the results approximate the actual cost. Requires an entity to use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified Techniques for the measurement of cost is similar to Indian GAAP. Change in method of valuation Method of valuation shall not be changed without reasonable cause. This is also in accordance with ICDS I. However, reasonable cause is not defined. The guidance for the same will need to be taken from judicial precedents. Change from one cost formula to another constitutes a change in an accounting policy. As such, pursuant to AS 5, a change in method of valuation of inventories should be made only if it is required by statute or for compliance with an AS or if it is considered that the change would result in a more appropriate presentation of the financial statements of the enterprise. Change from one cost formula to another constitutes a change in an accounting policy. A change in an accounting policy can only be made if the change is required by an Ind AS, or results in the financial statements providing reliable and more relevant information. Cost of purchases Purchase price includes duties and taxes, Under ICDS, duties and taxes, even if subsequently recoverable from taxing authorities, will form part of costs of purchase, and hence, will be included in the cost of inventories. This is in line with section 145A of the Act. Whether the effect will be nullified by the accounting entries under the inclusive method depends on the view taken by the Assessing Officer. The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase. Similar to Indian GAAP