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Case Code: CLFIN017
Case Length: 5 pages
Period: 2020
Pub Date: 2020
Teaching Note:Available
Subject : Finance
Organization :Anirudh Solar Energy Solutions (Fictitious)
Industry : Solar Items Manufacturing Industry
Countries : India

Net Realizable Value - The Ins and Outs in Inventory Valuation



After running production operations for three months during the financial year 2018-19, ASES started the financial year 2019-20 on a positive note. Various retailers and wholesalers had placed big orders for solar lanterns to be delivered during the year. While all the orders had been successfully delivered, the delivery of one batch of orders had been postponed on the request of the customers. Also, in addition to the existing orders from the retailers and wholesalers, ASES had received an order from an NGO. ASES closed the financial year 2019-20 with one completed order from various retailers and wholesalers, while processing the order of the NGO. The case study can help in discussing the necessity of calculating the net realizable value of the stock during the end of the financial year, and also for discussing how to calculate the value of various classes of inventory and the factors that need to be considered for the valuation of raw materials as per principles in the Accounting Standard-2 (Inventory Valuation).
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  • The concept of net realizable value.
  • Calculating the net realizable value of various categories of inventory
  • Factors that affect the value of raw materials and are necessary to calculate the net realizable value of the total inventory
After successfully delivering the products contained in the first and second batch of orders from retailers and wholesalers, Anirudh Solar Energy Solutions (ASES) was asked by the customers (both retailers and wholesalers) to postpone the delivery of the third batch of products due in the month of December 2019. Meanwhile, ASES received another order from an NGO for the delivery of 500 units of Category-3 lanterns.

The order had to be completed within 5 months. In response to a request from the NGO, ASES considered reducing the selling price of its Category-3 products. Toward this end, it sought to renegotiate with its suppliers to get them to reduce the cost of raw materials. Considering the request of the company and market conditions, the suppliers reduced the cost of raw materials per unit from Rs, 1000 to Rs.900. ..


Accounting; Accounting principles; Accounting Concepts; Accounting Standard-2; Inventory Valuation; Net Realizable value; Total Value of Inventory; Decision-making; Profit and loss account; balance sheet; Rationale behind valuing inventory on cost and net realizable value

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