TaxTMI 
TaxTMI 
VALUATION OF INVENTORY
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....which are in the production process (e.g. work-in-process), and goods awaiting sale (e.g. finished goods). 1.3 This standard deals with the principles of valuation of various cost components of inventory to arrive at proper value of Inventory. 1.4 This standard focuses on valuation of inventory on historical cost basis, for cost and financial reporting purposes. 1.5 This standard deals with the principles and methods of classification, measurement and assignment for determination of inventory value whether produced or acquired. 2. Objective: 2.1 The valuation of inventory largely influences the cost and financial statements of an entity and the margins reflected therein. The valuation of inventory is dependent on reasonable accuracy of exclusion and inclusion of various elements of cost and the extent of inclusion thereof and the method of valuation applied for determination of inventory value. The primary objective of this standard is to determine the cost elements and extent thereof to be included in the valuation of inventories and the method of valuation to be applied for determination of inventory value which is recognised as a current as....
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.... of origin but have not reached its intended destination. Inventory in Transit covers both inward and outward movement of goods. 4.7 Materials : 4.7.1 Direct Materials: Materials the costs of which can be attributed to a cost object in an economically feasible way. 4.7.2 Indirect Materials: Materials the costs of which cannot be directly attributed to a particular cost object. 4.8 Material Cost: The cost of Material used for the purpose of production of a product or rendering a service. 4.9 Net Realizable Value: Net Realizable 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. 4.10 Non-Moving Inventory: Non-moving inventory refers to inventory that has not moved within a certain period of time. The period shall be more than 12 months in case of inventory class or group such as direct materials, work in process, finished goods and Goods or merchandise for resale. The period shall be more than 24 months in case of indirect materials, process materials, additives, catalysts etc. 4.11 Normal Capa....
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....ems. a) Items of inventory owned by the entity, though lying outside the premises of entity shall be considered in the valuation of inventory. b) Items under the physical possession of the entity but not owned by the entity shall not form part of the inventory valuation of the entity. Some of such cases are: • Goods that are not for sale, even if they are technically in the company's possession. E.g. donated items, non-marketable goods. • Goods in the process of being returned - Items that are being returned to suppliers or customers and are not part of active inventory. E.g. Items or goods received from customers for repairs - Items in physical possession but not owned by the company. • Items on Loan or borrowed- Goods temporarily borrowed or rented but not owned by the business. E.g. Borrowed tools, leased equipments etc. - Items in physical possession but not owned by the company. • Consignment stock - Stock held physically by the entity but ownership is not with the entity. E.g. retailer holding stock on behalf of wholesaler or manufacturer. • In case of a contract manufacturer / Loan Licensee, g....
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....cts held by the company under legal circumstances, not for normal business use or sale. E.g. seized products, goods under litigation. 5.5. General Principles for inclusions in cost of inventory: 5.5.1. Cost of inventories shall comprise of all costs of purchase of goods, cost of purchase of services and Conversion Cost incurred in bringing the inventories to their present location and conditions. a) Conversion Cost includes, Direct Employee Cost, Direct Expenses, Cost of Utilities, Depreciation, Production Overheads, Cost of Primary Packing and other costs. b) All these costs are aggregated to arrive at the cost of inventory belonging to any class or group of inventory. c) It shall include all the direct and indirect costs and overheads allocated and apportioned, relevant to the procurement, manufacturing, producing and storing the inventories (in certain cases). d) Production based levies / duties / taxes shall form part of cost of inventory. 5.5.2. The determination of Normal Capacity shall be governed by Cost Accounting Standard on Capacity Determination (CAS-2). 5.5.3. Costs directly related to the acquisit....
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....ced. Items manufactured through contract manufacturing, subcontracting, process outsourcing shall be considered as Self Manufactured / Produced. 5.7. Valuation of Purchased / Procured inventory items shall be carried out using following principles : 5.7.1. Inventory as on a particular date is the resultant of opening stocks plus receipts less issues of a given period expressed both in terms of quantity and value. 5.7.2. Valuation of Inventory of an entity shall be governed by Cost Accounting Standard on Material Cost (CAS-6) for Principles of Measurement using principle of valuation of issue of material on First-in-First-out or Last-in-First-out or Weighted Average Cost assumption on cost flow. Principle of valuation of issue of material with assumption on cost flow at Last-in-First-out (LIFO) may be appropriate for purposes like cost estimation for pricing, determination of product profitability etc., The principle of valuation of inventory needs to be applied based on the applicable legal / statutory requirement. 5.7.3. All costs associated with bringing the inventory to its current location and condition shall form p....
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....st (CAS-7). 5.8.5. Determination of Direct Expenses shall be governed by the Cost Accounting Standard on Direct Expenses (CAS-10). 5.8.6. Determination of Utilities Cost shall be governed by the Cost Accounting Standard on Cost of Utilities (CAS-8). 5.8.7. Determination of Depreciation Cost shall be governed by the Cost Accounting Standard on Depreciation and Amortisation (CAS-16). 5.8.8. Determination of Primary Packing Cost shall be governed by the Cost Accounting Standard on Packing Material Cost (CAS-9). 5.8.9. Determination of Consumables & Stores Cost shall be governed by Cost Accounting Standard on Material Cost (CAS-6). 5.8.10. Determination of Repairs & Maintenance Cost shall be governed by the Cost Accounting Standard on Repairs and Maintenance Cost (CAS-12). 5.8.11. Determination of Quality Control Cost shall be governed by the Cost Accounting Standard on Quality Control (CAS-21). 5.8.12. Determination of Research & Development Cost shall be governed by the Cost Accounting Standard on Research and Development Costs (CAS-18). 5.8.13. Determination of Royalty & Technical Know-how Cost shall be....
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....essing or operation shall be valued at expected Selling Price (less) Cost of further processing or operation, (less) Cost of sale or disposal. 5.12.3. Inventory of Scrap Material which is recycled or reused in the process of manufacture is to be valued at replacement cost of material being replaced by the use of such scrap (less) associated expenses and value reduction on account of quality considerations. 5.13. Cost of Inventory in Transit - Cost of acquisition of the goods upto the location as on date of valuation shall be considered in the valuation of inventory in transit. a) In case of goods being transferred from factory to branch or godown, proportionate cost of acquisition of such goods at the destination shall be included in the cost of Inventory in Transit. b) In case of goods being transferred from factory or branch or godown to a customer, the cost of supply of such goods to the customer shall not be included in the cost of Inventory in Transit since the same shall be considered as cost of distribution. c) In case of goods being transferred to the factory or branch or godown of the entity, the cost of acquisition of such good....
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.... number of rapidly changing items that have similar margins and for which it is impracticable to use other costing methods. The cost of inventory is determined by reducing from the sales value of the inventory, the appropriate gross margin percentage. 5.17. Net realisable value: Any or all items of inventory under any class or group of inventory shall be valued at cost or net realisable value whichever is lower. The principle supports "Conservatism" as a fundamental principle in accounting with a considerate view that the value of asset should not be more than the one which will be realized at the point of sale or use. 5.17.1. Net Realisable value shall be based on the most reliable evidence available at the time of valuation. 5.17.2. Net realisable value is the net amount which is expected to be realized on the sale of inventory in an ordinary course of business. 5.17.3. The estimates of Net Realisable Value shall take into consideration the fluctuation of price directly relating to events occurring after the valuation date. 5.17.4. Net realisable value shall be based on the most reliable evidence available at the time of valua....
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....he net realisable value on the date of reassessment. 5.17.10. When a binding sale agreement exists for the items in the inventory, then the sales price as per such sales agreement shall be considered for calculation of Net Realisable Value for such specific items in inventory. 5.17.11. For calculation of NRV, the estimated selling price in the ordinary course of business needs to be adjusted by the estimated costs necessary to make the sale. Illustrative list of estimated costs necessary to make sale include - • Sales commission • Trade Discount • Brokerage • Special advertising needed to sell that item • Packing/repacking required specifically for sale • Export clearance/documentation charges • Freight outward (ONLY when necessary to make the sale) 5.18. Recognition as an expense or income: 5.18.1. On recognition of revenue through sales, the corresponding inventory value shall be recognised as cost in the same period. 5.18.2. The amount of write-down in the value of inventory due to its nature as "slow moving" or "non-Moving" or due to n....
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....ms of inventory shall be based on either of the following two principles: 6.2.1. Cause and Effect- Cause is the process or operation or activity and effect is the incurrence of the cost. 6.2.2. Benefits Received- To be apportioned to various cost objects in proportion to the benefits received by them. 6.3. The principles of assignment of various cost elements as given under respective Cost Accounting Standards shall be followed. 7. Presentation: 7.1. The total value of inventories and its classification in appropriate inventory groups / classes shall be presented. 7.2. Statement showing Valuation of Inventory shall be presented and certified as per Appendix 1 to this standard or as near thereto. 8. Disclosure: The following information should be disclosed regarding valuation of inventory in the cost statements. 8.1. Quantity and rates of major items of inventory of a particular group / class shall be disclosed. Major items are defined as those which form 5% or more of the value of Inventory of that group / class. 8.2. The basis of valuation of inventory shall be disclosed. 8.3. If the items of inventor....
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....ed to the extent ascertainable. Where such amount is not ascertainable, wholly or in part, the fact shall be indicated. 8.15. Where Standard Costing has been used as a measurement of cost, details of such inventories and a confirmation of the fact that standard cost approximates the actual cost shall be disclosed. 8.16. Disclosures shall be made only where significant, material and quantifiable. 8.17. Disclosures may be made in the body of the Cost statement or as a footnote or as a separate schedule. 8.18. If the fundamental accounting assumptions of Going Concern, Consistency and Accrual are not followed, the fact shall be disclosed. 9. Effective Date : This Cost Accounting Standard shall be effective from the period commencing on or after 12th February 2026 for being applied for the preparation and certification of Cost Accounting Statements. Appendix 1 Statement Showing Valuation of Inventory as on ________________________________ A. General Information Particulars Name of the Entity: Address of the Entity: ....