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Where Specific Identification method is not applicable, The cost of inventories is valued by the following
methods;
FIFO ( First In First Out) Method
Weighted Average Cost
Cost of inventories in certain conditions:
The following methods may be used for convenience if the results approximate actual cost.
Standard Cost: It takes into account normal level of consumption of material and supplies, labour, efficiency
and capacity utilization. It must be regularly reviewed taking into consideration the current condition.
Retail Method: Normally applicable for retail trade. Cost of inventory is determined by reducing the gross
margin from the sale value of inventory.
Net Realisable Value: NRV means the estimated selling price in ordinary course of business, at the time of
valuation, less estimated cost of completion and estimated cost necessary to make the sale.
Comparison between net realizable value and cost of inventory
The comparison between cost and net realizable value should be made on item-by-item basis. (In some
cases, group of items-by-group of item basis)
For Example:
Cost NRV Inventory Value as per AS-2
Item A 100 90 90
Item B 100 115 100
Total 200 205 200 190
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