From the following information provided by LMN Ltd. for the year 2024, you are required to compute the closing inventory: Raw Material A Closing…

CA Intermediate · Advanced Accounting · RTP · May 2025
From the following information provided by LMN Ltd. for the year 2024, you are required to compute the closing inventory: Raw Material A Closing balance: 700 units ₹ per unit Cost price including GST 280 ITC available 25 Freight inward 35 Handling charges 20 Replacement cost 200 Finished Goods B Closing balance: 1,800 units ₹ per unit Material consumed 280 Direct labour 80 Direct overhead 40 Total fixed overhead for the year was - 3,60,000 on a normal capacity of 36,000 units, while actual production has been 30,000 units. Calculate the value of closing stock when: (i) Net Realisable Value of Finished Goods B is 500 per unit (ii) Net Realisable Value of Finished Goods B is 380 per unit

Suggested Answer and Working Notes:

(i) When Net Realisable Value of Finished Goods B is 500per unit Value of Closing Stock: Valuation Base Method Qty. Rate (₹) Amount (₹) Raw Material A Cost 700 310 2,17,000 Finished Goods B Cost 1,800 410 7,38,000 Total Value of Closing Stock 9,55,000 (ii) When Net Realisable Value of Finished Goods B is 380per unit Since NRV of finished goods B is less than its cost (₹ 410, as per W.N.), raw material A is to be valued at replacement cost, and finished goods B is to be valued at NRV. Value of Closing Stock: Valuation Base Basis Qty. Rate (₹) Amount (₹) Raw Material A Replacement Cost 700 200 1,40,000 Finished Goods B Net Realisable Value 1,800 380 6,84,000 Total Value of Closing Stock 8,24,000 Working Note: Statement Showing Calculation of Cost of Raw Material A and Finished Goods B Raw Material A Amount (₹) Cost Price (280 - 25) 255 Add: Freight Inward 35 Add: Handling Charges 20 Total Cost 310 Finished Goods B Amount (₹) Materials Consumed 280 Direct Labour 80 Variable Overheads 40 Fixed Overheads (₹ 3,60,000 / 36,000 units) 10 Total Cost 410

Topics: AS 2, AS 13

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