Basis of Inventory ValuationInventories should be generally valued at cost or net realizable value, whichever is less. The inventories are valued as per principle of conservatism and AS 2. Now the question arises as to what are cost and net realizable values?
Cost refers to the amount of expenditure incurred on the acquisition and conversion of goods.
Net realizable value (NRV) is the estimated selling price in the ordinary course of business, less any cost to complete and to sell the goods.