Exclusion from Cost of Inventory
- Abnormal amounts of wasted materials, labour or other production costs.
- Storage costs, unless those costs are necessary in the production process prior to the further production stage.
- Administration costs
- Selling and Distribution costs.
Requirement of Accounting Standard 2 on valuation of inventories
- Inventories should be valued either at cost or net realizable value, whichever is lower.
- Cost of inventories should comprise all costs incurred for bringing inventories to their present location and condition.
- Net realizable value is the estimated selling price less estimated cost of completion and estimated cost necessary to make the sale.
- Specific identification method should be used where the goods are not ordinarily interchangeable or have been segregated for specific projects.
- Weighted average cost or FIFO method is to be used in cases where the goods are ordinarily interchangeable.
- Disclose the accounting policies adopted. It includes the cost formula used, total carrying amount of inventories and its classification.