Question 2 (b)
Value of stock under AS-2 (consignee stock, damaged goods)
3 marks
- Time to write
- About 6 minutes
- Notes
- Crux notes
Question
Question 2 (b) · 3 marksFrom the information below, find the value of stock as on 31-3-2026 according to AS-2:
The cost of the physical stock on 31-3-2026 was ₹5,00,000.
The cost of stock held as consignee was ₹1,00,000.
The stock was expected to realize its normal selling price of 140% of cost, except for the following goods:
Goods costing ₹30,000 were damaged, and an expenditure of 10% of the normal selling price was necessary to realize the cost.
Goods that cost ₹50,000 were damaged beyond repair and were expected to realize only ₹15,000.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- (i)–(iii)3 items, each marked on its own: give each its share.
- findFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
- The stock held as consignee is given separately from the physical stock; we read it as included in the physical count, so it is taken out (the business holds it but does not own it).
- The first damaged lot is an exception to the normal selling price, and the paper says an expenditure of 10% of the normal selling price "was necessary to realize the cost". We read this as: the damaged goods now fetch only their cost (₹30,000), and selling them costs 10% of the normal selling price (10% × 140% × ₹30,000 = ₹4,200). Net realisable value is ₹25,800, below cost, so the lot is valued at ₹25,800 and the stock at ₹3,60,800. If the lot could still be sold at the normal selling price less that 10% (₹37,800, above cost), it would stay at cost and the stock would be ₹3,65,000.
- Both damaged lots are read as part of the stock the business owns.
Write it in this order
- 1 Consignee stock excluded; normal goods at cost 1 mark 2 min
- 2 Damaged lots at the lower of cost and NRV 1 mark 2 min
- 3 Value of stock 1 mark 2 min
Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Under AS-2, stock is valued at the lower of cost and net realisable value, item by item. Stock held only as a consignee belongs to the consignor, so it is not part of this business's stock.
1On the shelf, each blue vase stands by its little stack of coins—stock, priced.
Basic rule of measurementInventories are valued at the lower of cost and net realisable value.
2Clay arriving, the potter at the wheel, the kiln burning—every step adds to cost.
What cost includesCosts of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
3The spoiled batch swept from the kiln floor counts nowhere—abnormal waste stays out.
What cost excludesAbnormal amounts of wasted materials, labour or other production costs.
4A cracked vase on the table: it goes in the books at what it can still fetch.
Write-down to net realisable valueInventories are written down below cost if they are damaged or obsolete, or if their selling prices have fallen.
| Item | Cost (₹) | Net realisable value (₹) | Valued at (₹) |
|---|---|---|---|
| Normal goods (5,00,000 − 1,00,000 consignee − 30,000 − 50,000) | 3,20,000 | 4,48,000 | 3,20,000 |
| Damaged lot (1) | 30,000 | 25,800 | 25,800 |
| Damaged lot (2) | 50,000 | 15,000 | 15,000 |
| Value of stock on 31-3-2026 | 3,60,800 |
- Normal goods: net realisable value is 140% of cost, above cost, so they stay at cost.
- Lot (1): the damaged goods fetch only their cost, ₹30,000, and selling them costs 10% of the normal selling price, 10% × (140% × 30,000) = ₹4,200. Net realisable value ₹25,800 is below cost, so the lot is written down to ₹25,800 (paper note).
- Lot (2): ₹15,000 is all it will fetch, against a cost of ₹50,000, so it is written down to ₹15,000.
Losses are provided for when they are foreseen, but gains are not taken until they are earned, so stock is written down to net realisable value where that is lower, and never written up.
Where the 3 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Consignee stock excluded; normal goods at cost | 1 |
| 2 | Damaged lots at the lower of cost and NRV (₹25,800 and ₹15,000) | 1 |
| 3 | Value of stock ₹3,60,800 | 1 |
| Total | 3 |
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