Objective, Scope & Definition - Ind AS - Indian Accounting Standards - Companies Law

Objective, Scope Definition Objective Determination of carrying amount of inventories in Financial Statements (FSs). This includes determination of the cost of inventory and any amount to be written off to bring it to Net Realisable Value (NRV); It provides guidance on the cost formulas that are used to assign costs to inventories. This standard is very important as valuation of inventory impacts both P L as well as Balance Sheet i.e., if closing stock is overvalued/undervalued, it impacts CY profits as well as asset value in the Balance Sheet. Scope This Standard applies to all inventories, except: Financial Instruments (If any contract satisfies financial asset or financial liability definition it should be dealt by Ind AS 32, Financial Instruments: Presentation and Ind AS 109, Financial Instruments and ); and Biological Assets (ie living animals or plants) related to agricultural activity and agricultural produce at the point of harvest (See Ind AS 41, Agriculture). This Standard does not apply to the measurement of inventories held by: 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. When such inventories are measured at Net Realisable Value, changes in that value are recognised in profit or loss in the period of the change. Commodity broker-traders who measure their inventories at fair value less costs to sell. When such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of the change. Notes - If inventories are recognized at net realizable, the profit or loss on those are recognized in the year even though it is not yet been sold. This occurs, for example, when agricultural crops have been harvested or minerals have been extracted and sale is assured under a forward contract or a government guarantee, or when an active market exists and there is a negligible risk of failure to sell. These inventories are excluded from only the measurement requirements of this Standard. Broker-traders are those who buy or sell commodities for others or on their own account. The inventories are principally acquired with the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders margin. When these inventories are measured at fair value less costs to sell, they are excluded from only the measurement requirements of this Standard. Definitions The following terms are used in this Standard with the meanings specified: Inventories are assets : held for sale in the ordinary course of business; in the process of production for such sale; or in the form of materials or supplies to be consumed in the production process or in the rendering of services. 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. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 113, Fair Value Measurement.