PDF · Notes
AS 2 Valuation of Inventories: CA Inter Advanced Accounting Notes
- Shared by
- Anchal A.
- Course
- CA Inter
- Subject
- Advanced Accounting
- Added
- 3 Nov 2026
Part of: CA InterAdv Accounting
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These notes on AS 2 Valuation of Inventories cover the core principles a CA Inter student needs for Advanced Accounting. They explain what inventories are, which items fall in the scope of AS 2 and which are excluded, and how inventories are measured at the lower of cost and net realisable value. The notes also walk through the cost of purchase, cost of conversion and other costs, along with the cost formulae used for valuation. Students preparing for the Asset Based Accounting Standards topic will find this a compact, concept-wise revision resource.
What the Notes Cover
The notes begin with the introduction of inventory as the bread and butter of a business and then set out the scope of AS 2. They explain the meaning of inventories as finished goods, work-in-progress and raw materials, and show how measurement follows the lower of cost and net realisable value. Separate concepts deal with the components of cost, including purchase cost, conversion cost and joint cost allocation, and with net realisable value. Items excluded from the cost of inventories, such as abnormal production costs, administrative overheads, exchange differences and selling costs, are listed clearly. The cost formulae section compares specific identification, FIFO and other methods with their effect on profit during inflation and deflation.
How to Use These Notes for Revision
Read the concept headings first to get the structure of AS 2, then work through the flow diagrams for measurement and cost components. The side-by-side listing of inclusions and exclusions suits quick recall before exams. Practise applying the NRV test to finished goods and raw materials, and check how the choice of cost formula changes closing stock and profit. Keep the cost formulae comparison ready, since questions often ask students to explain the effect of FIFO in rising prices.
Who Should Read These Notes
These notes suit CA Inter students studying Advanced Accounting who need a clear summary of AS 2 for theory and numerical questions. They are also useful for students revising inventory valuation for other commerce exams that test Indian accounting standards. Readers who find the standard text dense will benefit from the condensed concept format and the visual layout of cost components.
Key topics in these notes
- Scope of AS 2
- Meaning of inventories
- Measurement at lower of cost and NRV
- Cost of purchase and conversion
- Joint and by-product costing
- Exclusions from cost of inventories
- Cost formulae: FIFO weighted average specific identification
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Frequently asked questions
What is covered in AS 2 Valuation of Inventories?
AS 2 gives guidance on determining the value of inventories and their presentation in financial statements. It excludes items such as work-in-progress under construction contracts and shares held as stock-in-trade.
How are inventories measured under AS 2?
Inventories are measured at the lower of cost and net realisable value. Raw materials are generally valued at cost unless finished goods are expected to sell below cost.
Which costs are excluded from the cost of inventories?
Abnormal production costs, administrative overheads, exchange differences, and selling and distribution costs are excluded and recognised as expenses. Storage costs are also excluded unless production requires them.
What is the difference between FIFO and weighted average under AS 2?
FIFO records closing stock at the latest purchase price, so profit is higher in inflation. Weighted average is one of the historical cost methods used for interchangeable inventories.
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