Definition: The raw materials, work-in-process goods and
completely finished goods that are considered to be the portion of
a business's assets and being ready for sale.
·
Valuation: Lower of –
ü Cost (i.e. purchase cost + cost of
conversion + Other cost)
v Purchase cost = Supplier’s gross price + import duties – trade discounts
v Cost of conversion = direct material, labour, overheads
v
Other costs = to bring it into present
condition and location
v It should not include abnormal waste or foreign exchange differences
ü Net
realizable value (i.e. estimated selling price – estimated cost to sale)
v If NRV < Cost, write down inventories and charge in SOPL (i.e. I/S)
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