B Limited has valued its Stock held for distribution as free items on claim by customers (on offers) at zero. Customers have a right to claim the…

CA Final · Financial Reporting · RTP · May 2024
B Limited has valued its Stock held for distribution as free items on claim by customers (on offers) at zero. Customers have a right to claim the free item within 14 days from date of invoice. If the time limit of 14-day exceeds, the claim is foregone by the customer. The majority of the free items require online registration by the buyers for participation in the contest conducted by the respective brand which needs to be done by the buyers within 3 days from the date of invoice. Out of it, a few items under this category were found damaged. The replacement cost of such items would be - 2,50,000. Determine whether the entity has to book loss of inventory or provide for replacement cost of the goods that need to be given as free items to customers as per the principles of Ind AS.

Suggested Answer and Working Notes:

Ind AS 2 deals with write-off in value of inventory. The stock of free items is valued at zero by the company. The question of "Loss of Inventory - 2,50,000” does not arise as the claim of free stock is subject to various conditions like claim within 14 days, online registration within 3 days, etc. which are all contingent in nature. However, provision is to be made for goods to be distributed in case claims from customers are received since the customer can claim the free items within 14 days from the date of invoice. Hence provision of 2,50,000 is to be made for.

Topics: Ind AS 2

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