A leading construction company has disclosed its accounting policy regarding valuation of inventory as raw materials, work-in-progress and store & spares are valued at cost or net realisable value, whichever is lower. It has not disclosed cost formula used for valuation.
Whether, the disclosure of accounting policy regarding valuation of inventory made by the company is appropriate?
Answer
No.
Para 26(a) of AS 2 “Valuation of Inventories” states that the cost formula used for valuation of invento
ries should be disclosed in the financial statements along with accounting policies adopted in valuation of inventories.
As the construction company has not disclosed the cost formula used for valuation so, disclosure regarding valuation of inventory is not appropriate.