Reply by - ramesh bhatia , Mar 23 2018 5:08PM
Inventory
You can never depreciate inventory. Inventory is
any property you hold primarily for sale to customers in the ordinary course of
your business
As per AS 2 inventories are assets ? held for sale in the ordinary
course of business; ? in the process of production for such sale; or ?
in the form of materials or supplies to be consumed in the production process
or in the rendering of services. In India valuation of inventories has been
dealt with Indian Accounting Standards (AS 2) given by ICAI.
The financial statements should disclose: ? the accounting
policies adopted in measuring inventories including the cost formula used; and
? the total carrying amount of inventories and its classification appropriate
to the enterprise. ? All time inventories should valued at the lower of the
cost and net realisable value. Other costs incurred in bringing the inventories
to their present location and condition. ? (e.g. cost involved in designing the
customer’s requirement) costs of conversion ? (Labour Fixed and Variable cost
in Prod.) costs of purchase ? (Basic purchase price + Duties) The cost of inventories
should comprise all . Exclusions from
the cost of inventory: ? abnormal amounts of wasted materials labour or other
production costs; ? storage costs unless those costs are necessary in the
production process prior to a further production stage; ? administrative
overheads that do not contribute to bringing the inventories to their present
location and condition; and ? selling and distribution costs.
In
general the term “Depreciation” means decline in the value of a fixed assets due to use passage of time or obsolescence. In other words
if a business enterprise procures a machine and uses it in production process
then the value of machine declines with its usage. Even if the machine is not
used in production process we can not expect it to realise the same sales
price due to the passage of time or arrival of a new model (obsolescence). It
implies that fixed assets are subject to decline in value and this decline is
technically referred to as depreciation.
.It
implies that fixed assets are subject to decline in value and this decline is
technically referred to as depreciation
Even if the machine is not used in production process we can not expect it to
realise the same sales price due to the passage of time or arrival of a new
model (obsolescence). In other words if a business enterprise procures a
machine and uses it in production process then the value of machine declines
with its usage. In general the term “Depreciation” means decline in the value
of a fixed assets due to use passage of time or obsolescence.