Analysis of Inventory to be valued at Cost or NRV / Cost And NRV
As per Para 5 of AS-2 and Para -9 of Ind AS “Inventories shall be measured at lower of Cost and Net realizable value. But Few of the companies had also used Cost or NRV whichever is lower in its Notes to account or other related documents. Let us understand which one is correct and which one is wrong.
CASE- A. Suppose ABC ltd Deal with Group of Stock namely A,B and C. The balance as on Balance sheet date is as follows:
| Particular | Cost | NRV | Basis | Inventory Cost |
| A | 100 | 110 | Cost | 100 |
| B | 80 | 100 | Cost | 80 |
| C | 120 | 100 | NRV | 100 |
| Total | 280 |
Since the ABC limited has used both the method in its valuation. Therefore the word Lower of Cost and NRV should be used.In other words, when you have shown your inventories by using both the word, The word “AND” obviously come.
CASE -B.Suppose ABC ltd Deal with Group of Stock namely A, B and C. The balance as on Balance sheet date is as follows:
| Particular | Cost | NRV | Basis | Inventory Cost |
| A | 100 | 110 | Cost | 100 |
| B | 80 | 100 | Cost | 80 |
| C | 120 | 150 | Cost | 120 |
| Total | 300 |
In the aforesaid case, ABC ltd has used only one method for valuation of its stocks. Therefore the word Lower of Cost or NRV should be used. Since, same method is followed for all the varieties of inventory.
Conclusion. In my view, If a company had only one product or has used same method for all its group/ type of Inventories. The word Lower of Cost or NRV should be used.
On the other hand, If company had used different methods for its group of inventories. The word Lower of Cost and NRV should be used.So both the words are correct depend on the Fact of the cases. But it is advisable to use the word” Cost and NRV, Whichever is lower”
