PDF · Important questions bank for CA inter by CA Akash kandoi sir
AS 2 Inventories: Solved Illustrations for CA Inter Advanced Accounting
- Shared by
- Divyaaa B.
- Course
- CA Inter
- Subject
- Advanced Accounting
- Added
- 3 Nov 2026
Part of: CA InterAdv Accounting
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This CA Inter Advanced Accounting note works through AS 2 (Revised) on Valuation of Inventories with solved illustrations. It covers how closing stock is valued at the lower of cost and net realisable value, item by item, and how normal and abnormal waste are treated in the cost of inventories. The questions are typical of exam-style problems on stock valuation, so the note suits students revising the inventories chapter before tests or practising written answers.
What the note covers
The pages solve several illustrations on inventory valuation. One compares historical cost and net realisable value for three unrelated products and values closing stock item by item. Another adjusts stock for a commission on expected sale value. Further examples deal with normal and abnormal wastage in production, a per-kg valuation that includes fixed production overheads on normal capacity, and a list of costs that must be expensed rather than included in inventory, such as selling and storage costs.
How to use it for revision
Each illustration sets out the question, then the reasoning under AS 2 and the final figures. Students can attempt the problem first, then compare their working against the solution step by step. The wastage and overhead examples are useful for practising how normal capacity and abnormal loss change the answer. Writing out the list of excluded costs from Illustration 5 helps with theory questions that ask for examples.
Who should read it
This is meant for CA Inter students studying Advanced Accounting and working through the AS 2 chapter. It is especially useful for those preparing for questions on closing stock, net realisable value and cost of conversion, which recur in exam papers.
Key topics in these notes
- Lower of cost and net realisable value
- Item-by-item valuation of closing stock
- Normal and abnormal loss in production
- Fixed and variable production overheads
- Costs excluded from inventory cost
- Commission on expected sale value
- Replacement cost of raw materials
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Frequently asked questions
What does AS 2 say about valuing closing inventory?
Under AS 2 (Revised), inventories are valued at the lower of cost and net realisable value, and this is applied item by item in the illustrations shown.
How is abnormal waste treated under AS 2?
Abnormal wasted materials, labour and production costs are excluded from inventory cost and charged as an expense in the period they are incurred, as worked out in the wastage illustrations.
Which costs are excluded from the cost of inventories?
The note lists abnormal waste, storage costs (unless needed before a further production stage), administrative overheads not contributing to location or condition, and selling and distribution costs.
Does the note show how fixed overheads are allocated?
Yes, Illustration 4 allocates fixed production overheads based on normal capacity to find the cost per kg of finished goods.
How can I get the full note?
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