Abstract

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)

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• 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

Keywords

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