In a production process, normal waste is 5% of input. 5,000 MT of input were put in process resulting in wastage of 300 MT. Cost per MT of input is ` 1,000. The entire quantity of waste is on stock at the year end. State with reference to Accounting Standard, how will you value the inventories in this case? - Find 4 Answers & Solutions

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Question: In a production process, normal waste is 5% of input. 5,000 MT of input were put in process resulting in wastage of 300 MT. Cost per MT of input is ` 1,000. The entire quantity of waste is on stock at the year end. State with reference to Accounting Standard, how will you value the inventories in this case?

Posted by: Riya Agrawal on: 31 Oct, 2017

4 Answers by Expert Tutors

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Answer

Valuation of Inventories is as per AS-2

Valuation is : Cost or Net realisable Value(which ever is less)

Normally, total Normal Loss shall be brone by Good units.

(5000*5%=250MT), therefore

normal loss =250 MT * Rs. 1000 per ton =Rs. 250000

Abnoral Loss= Acual Loss of Units - Expected Loss

50MT=(300MT-250MT), Total Abnormal Loss 50MT * 1000= Rs. 50000

Value per MT=(Total cost-Abnormal Loss)/Good Units

Total cost of BUying = 5000MT * Rs. 1000= Rs.50,00,000

Less: Abnormal Loss= 50MT * Rs. 1000= Rs.50,000

Total cost = Rs. 49,50,000

Cost per Unit= (Rs. 49,50,000/(5000MT-50MT))=1042.105

Abnormal loss(to be Dr. to P & L account= Rs. 1042.105* 50MT=Rs. 52105.

Closing Stock Value=Rs. 1042.105 Per MT * 4700MT(5000MT-300MT)=4897895

Hope it Clarified your question

Answer by:

Venkatesh K A, Bangalore

Answer

Hi,

Hope this is helpful.

Answer by:

Vignesh Avasarala, Chennai

Answer

Inentory will be valued as per the AS 2 - Inventories, cost or realisable value whichever is lower.

Answer by:

Sfurti Vohra, Hyderabad

Answer

As per para 13 of AS 2 (Revised), abnormal amounts of wasted materials, labour and other production costs are excluded from cost of inventories and such costs are recognized as expenses in the period in which they are incurred. In this case, normal waste is 250 MT and abnormal waste is 50 MT. The cost of 250 MT will be included in determining the cost of inventories (finished goods) at the year end. The cost of abnormal waste (50 MT x 1,052.6315 = ` 52,632) will be charged to the profit and loss statement. Cost per MT (Normal Quantity of 4,750 MT) = 50,00,000 / 4,750 = ` 1,052.6315 Total value of inventry = 4,700 MT x ` 1,052.6315 = ` 49,47,368.

Answer by:

Aman Jain, Bangalore

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