About inventories valuation AS-2, recommends that the general rule of valuing inventories should be at lower of historical cost and net realisable value subject to certain exceptions. The historical of the inventories should normally be determined by using "FIFO', 'LIFO' or Average Cost' method. Inventory of by-products cannot be separately determined. It should be valued at net realisable value. 839 LCM rule can be applied in anyone of the following ways: 1. Aggregate/total inventory method: In this method, cost price of the total inventory is ascertained and then compared with total net realisable price to arise at stock valuation. 2. Group Method: Under this method, groups are formed of similar or interchangeable articles of inventory. The cost and the net realisable value of each group so formed are found out. The LCM rule is applied to each group. 3. Item-by-item-method: According to this method, the cost and net realisable prices of each item of inventory are found out and the lower of the figures is taken into account for valuation of inventory. Both IAS-2 and AS-2 have recommended the use of "Group method" and "Item-by-Item" method for valuation of inventory. The first method namely "Aggregate or Total Inventory method" have not been recommended by both the standards. The learner's will understand the difference between all the three methods from the following illustration. Illustration: Given the following data about inventors as at 31 December, 2005 Category No. of Items Cost (Rs.) Net Realisable Value (Rs.) A 10 21 20 A 16 15 14 B 20 30 40 B 10 18 16 9 40 45 30 D 7 8 8 8 25 10 5 D 6 Calculate the value of inventory on the basis of lower of cost and net realisable value (1) by the aggregate method, (2) by the group and (3) by item-by-item method