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Educational Material on Ind AS 2 Inventories Complete Information

Educational Material on Ind AS 2 Inventories Complete Information

Ind AS 2 Inventories Complete Information : Ind AS 2  Inventory is the raw materials, work-in-process products and finished goods that are considered to be the portion of a business’s assets that are ready or will be ready for sale. Inventory represents one of the most important assets of a business because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company’s shareholders.

BREAKING DOWN ‘Inventory’

Inventory represents finished goods or goods in different stages of production that a company keeps at its premises. Inventory can also be on consignment, which is an arrangement when a company has its goods at third-party locations with ownership interest retained until goods are sold. Inventory is reported on a company’s balance sheet under the current assets category, and it serves as a buffer between manufacturing and order fulfilment. When an inventory is sold, its carrying cost goes into the cost of goods sold on the income statement.

Educational Material on Ind AS 2 Inventories Complete Information

Ind AS 2 Inventories Complete Information : Ind AS 2  Inventory is an asset that is owned by a business that has the express purpose of being sold to a customer. This includes items sold to end customers or distributors. It includes raw materials, work in process, and finished goods. The management of inventory is a key concern of all businesses. If a company’s inventory level is too low, it risks delays in fulfilling it’s customers orders. If the inventory is too high, it is tying up dollars that can be better used in other areas. It also risks obsolescence and spoilage. Successful businesses keep their inventory turns high, but also keep their service level at or above the industry standard.

Types of Inventory

There are three components typically classified under the inventory account: raw materials, work in progress and finished goods. Raw materials represent goods that are used in the production as a source material. Examples of raw materials are metal bought by car manufacturers, food ingredients held by food preparation companies and crude oil held by refineries.

Work in progress includes goods that are in the process of being transformed during manufacturing and are about to be converted into finished goods. For example, a half-assembled airliner or a ship that is being built would be work in process.

Finished goods are products that have gone through the production and ready for sale, such as completed airliners, ready-to-ship cars and electronics. Retailers who buy and resell goods typically call inventory “merchandise,” which includes finished goods bought from producers and can be resold immediately. Examples of merchandise include electronics, clothes and cars held by retailers.

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Educational Material on Ind AS 2 Inventories Complete Information

Ind AS 2 Inventories Complete Information : Additional Inventory Definitions: Finished Goods Inventory – items that are in stock and that await sale to your customer. They have completed the manufacturing process and are ready for sale. The proper management of Finished Goods Inventory is a key concern to many businesses. Lead Time – the amount of time from when you place an order with your vendor, to the time it is delivered to you. This includes the transportation time. Raw Materials – a substance or material that is used in the manufacturing of finished goods. ROP (Reorder Point) – The point at which you order additional raw materials or inventory. Safety Stock – Buffer inventory to account for uncertainty due to fluctuations in demand or lead time. Higher Safety Stock can be used to boost the on time service rate to your customers. Vendor Managed Inventory – a business model where a manufacturer is responsible for maintaining the inventory at a distributor. The manufacturer has access to the distributors inventory levels and creates the replenishment orders. WIP (Work in Progress) – material that is in the production process, but is not yet a finished good.

Objective:

a) Deals with the determination of cost ,

b) Subsequent recognition as an expense , including any write-down to NRV ,

c) Guidance on the cost formulas that are used to assign costs to inventories. 2.

Scope:

1) Financial instruments (Ind AS 32, Financial Instruments: Presentation and Ind AS 109, Financial Instruments and ); and

2) Biological assets (i.e. living animals or plants) related to agricultural activity and agricultural produce at the point of harvest (See Ind AS 41, Agriculture).

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Educational Material on Ind AS 2 Inventories Complete Information

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Educational Material on Ind AS 2 Inventories Complete Information

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