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nn Less: Estimated cost of completion 2,000 Net Realisation value 1.800 Cost of semi-finished wit 3.000 Value of Inventory 1.800 (Lower of cost and Net
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Less: Estimated cost of completion 2,000 Net Realisation value 1.800 Cost of semi-finished wit 3.000 Value of Inventory 1.800 (Lower of cost and Net Realisation value) Comparison of cost and Net Realisable Value There are three methods for comparison Item by item method Group method Total Inventory method Out of these, first two methods comply with the requirements of AS-2 AS-2 requires that individual item of stock should be valued separately by such comparison of cost and net realisable value. However, if this is not practically possible, group of similar items should be valued together. For example, it is expansive and time-wasting to compare cost and net realisable value of every individual shirt held by readymade garment company. In such a case, it is allowed to place value to all the shirts of similar category and grade together, which is made clear in the following sums Sum 3 (Item by item method) E Ltd., a dealer in second-hand cars has the following five vehicles of different models and makes in their stock at the end of the financial year 2007-2008: b31 Inventories 329 Zan 2.15.000 2.05.000 Total 8.15,000 8.65.000 Car Santro Indice Maruti Esteem Mari 800 Cost 95,000 1.20.000 2.80,000 1,05,000 Net realisable value (Rs.) 1,00,000 1.60.000 2.70,000 1.30.000 Find inventory 1. Item by item comparison method. 2. Total inventory comparison method and 3. To be included in the balance sheet of the company as on March 31, 2008Step by Step Solution
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