The Drink Well Beer Limited runs a number of outlets for selling beer. Some of the bottles sold at these outlets are carried by the customers and are consumed later. In other cases, the beer is consumed by the customer in the bar operated by the company near the beer outlets. In such cases the empty bottles are left behind by the customers and the company takes the possession of the empty bottles. The company keeps proper records of these bottles and sells them by inviting tenders. While preparing the accounts for the year 2016–17, the company estimated that the stock of empty bottles in hand has a realizable value of about ₹ 12 million. The accounts team is debating about the possible treatment of these empty bottles in the accounts for the year 2016–17. The following options were discussed: 

1. Mention the realizable value by way of notes to accounts only. The stock will not be brought into accounts at all. As the company is not the legal owner of these bottles (having been sold to the customers) it cannot be shown as an asset in the balance sheet. 

2. Include the stock of empty bottles in the balance sheet under current assets under a separate heading at the current realizable value of ₹ 12 million. 

3. Include the stock of empty bottles in the balance sheet under current assets as inventory. Inventory is required to be valued at lower of the cost of net realizable value. As the cost of these empty bottles in NIL, the stock may be included in the balance sheet at a nominal value (say ₹1).

Questions for Discussion 

1. Which of the above three alternatives will you prefer? 

2. What will be the impact of the above alternatives on the profit and loss account of the company?