Inventory Valuation

As per Accounting standard 2, the inventory is Valued as cost or market value which
ever is less:

Cost includes cost of purchase, cost of conversion and other cost incurred in normal
course in the business.

Cost of purchase:

Purchase price
Add: Duties and taxes
Add: Transport charges/ Loading charges
Less: Tax refundable
Less: Trade discount

Illustration :

Sun Ltd Purchased 1000 units of material at list price of Rs 50 per unit. The duties and
taxes amounted to Rs 35,000 out of which Rs 10,000 refundable. The supplier allowed a
rebate of Rs 6,000 on the list price. The company spent Rs 7,000 on transportation and rs
2,000 on loading and unloading.

Cost of conversion: It consist of the cost directly related to units i.e Direct labour, Direct
material ,Direct expenses , Variable expenses and systematic allocation of fixed cost that
are incurred for converting raw material into finished goods

Illustration 1 :

Prepare a stores ledger from the following transaction assuming that issue of stores have
been made on Principle of FIFO basis.

2008
July 1 Received 1000 units at Rs 20 per unit.
2 Received 350 units at Rs 21 per unit.
3 Issued 700 units
7 Issued 400 units
12 Received 550 units at Rs 22 per unit
16 Issued 350 units
21 Received 100 units at Rs 23 per unit
24 Issued 500 units
27 Received 200 units at Rs 20 per unit
31 Issued 180 units.
A stock verifier of the factory noted that on 22th July he had found a shortage of 5 units
and 28th July another shortage of 10 units.
Illustration 2 :

Prepare a stores ledger from the following transaction assuming that issue of stores have
been made on Principle of FIFO basis.

2009
January 2 : Purchased 2000 units at Rs 4.00 per unit
January 20: Purchased 250 units at Rs 5.00 per unit
February 5: Issued 1000 units
February 10: Purchased 3000 units at Rs 6.00 per unit
February 12 : Issued 2000 units
March 2 : Issued 500 units
March 5: Issued 1000 units
March 15 : Purchased 2250 units at Rs 5.50 unit
March 20: Issued 1500 units

A stock verifier of the factory noted that on 15th February he had found a excess of 5
units and March 10 there was excess 10 units.

Illustration 3 :

Prepare a stores ledger from the following transaction assuming that issue of stores have
been made on Principle of weighted average basis.

2009
March 1 : Opening stock 200 units at Rs 2 each

Purchases:
March 5: 100 units at Rs 2.20 each
March 10: 150 units at Rs 2.40 each
March 20: 180 units at Rs 2.60 each

Issues:
March 6: 150 units
March 11: 100 units
March 21: 200 units

On 13 March the stock verifier reported that there was shortage of 10 units.
`
Illustration 4 :

Prepare a stores ledger from the following transaction assuming that issue of stores have
been made on Principle of weighted average basis.

2009
March 1 : Opening stock 2000 kgs at Rs 28 each
Purchases:
March 11: 1800 Kgs at Rs 27 each
March 21: 1700 Kgs at Rs 25 each

Issues:
March 6: 1300 Kgs
March 15: 1400 Kgs
March 18: 700 Kgs
March 29: 1,100 Kgs