Page 76 - IC26 LIFE INSURANCE FINANCE

The other costs are also included in the cost of inventory to the extent they contribute in bringing the

inventory to its present location and condition.

Interest and other borrowing costs are usually not included in cost of inventory. However, AS-16

recommends the areas where borrowing costs are taken as cost of inventory.

Certain costs are strictly not taken as cost of inventory.

(a) Abnormal amounts of wasted materials, labour, or other production costs;

(b) Storage costs, unless those costs are necessary in the production process prior to a further production

stage;

(c) Administrative overheads that do not contribute to bringing the inventories to their present location and

condition; and

(d) Selling and Distribution costs.

Cost Formula:

Specific identification method for determining cost of inventories

Specific identification method means directly linking the cost with specific item of inventories. This method

has application in following conditions:

 In case of purchase of item specifically segregated for specific project and is not ordinarily

interchangeable.

 In case of goods of services produced and segregated for specific project.

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