Ind AS 2
Active
Inventories
Prescribes the accounting treatment for inventories, including cost measurement, NRV and cost formulas, converged almost exactly with IAS 2 with the main Indian nuance being GST input tax credit interaction.
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Conceptual Framework Linkage
Identical lower-of-cost-and-NRV philosophy to IAS 2
Ind AS 2 applies the IDENTICAL principle as IAS 2 – inventories are measured at the LOWER of cost and net realisable value, ensuring assets are not carried above amounts expected to be recovered through sale.
HOW IND AS 2 MAPS TO THE FRAMEWORK
Prudence – writing inventory down to NRV when cost is not recoverable – identical to IAS 2 Interaction with India's GST regime – inventory cost EXCLUDES GST amounts for which the entity is entitled to input tax credit, since such credits are not a genuine cost to the entity – a practical Indian tax-interaction point, not a substantive accounting divergence from IAS 2's own "cost excludes recoverable taxes" principle
Ind AS 2 introduced NO substantive change to the cost/NRV measurement model relative to IAS 2 – its practical application in India is most distinctive for the GST input credit netting mechanism.
The core formula – identical to IAS 2
Inventory value = Lower of (Cost, Net realisable value)
IDENTICAL to IAS 2 – no Indian-specific modification to this core measurement rule.
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Scope & Applicability
What Ind AS 2 covers
Ind AS 2 applies to all inventories except work in progress under construction contracts, financial instruments, and biological assets – IDENTICAL scope to IAS 2.
Key definitions you must know
Net realisable value
IDENTICAL definition to IAS 2 – estimated selling price less estimated costs of completion and sale.
GST input tax credit
A credit an Indian registered entity can claim against GST paid on purchases, EXCLUDED from inventory cost to the extent recoverable.
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Measurement – Lower of Cost and NRV
Identical to IAS 2
Comparison of cost and NRV is generally made item by item, or by groups of similar items – IDENTICAL to IAS 2.
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Costs Included in Inventory
Identical cost components to IAS 2
Example 1: Purchase cost including and excluding GST
An Indian manufacturer purchases raw materials for ₹10,00,000 plus GST of ₹1,80,000, and is entitled to claim the FULL ₹1,80,000 as input tax credit against its GST liability on sales.
The inventory is recognised at ₹10,00,000 – the GST amount is EXCLUDED from cost because it is FULLY recoverable via input tax credit, consistent with IAS 2's own principle that recoverable taxes are excluded from cost – an IDENTICAL underlying rule to IAS 2, applied here in the specific Indian GST context.
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Cost Formulas – FIFO and Weighted Average
Identical to IAS 2
FIFO or weighted average cost formulas are permitted for interchangeable items; specific identification is required for items that are NOT ordinarily interchangeable – IDENTICAL to IAS 2, with LIFO prohibited under both.
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Net Realisable Value
Identical to IAS 2
NRV estimates are based on the most reliable evidence available at the time of estimation, considering fluctuations in price/cost directly relating to events after the reporting period – IDENTICAL to IAS 2.
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GST Input Tax Credit – Indian Cost Measurement Context
A genuinely important Indian practical application area
India's GST regime allows registered businesses to claim input tax credit for GST paid on eligible purchases, offsetting it against GST collected on sales. Under Ind AS 2's "cost excludes recoverable taxes" principle (IDENTICAL to IAS 2), the RECOVERABLE portion of GST is EXCLUDED from inventory cost, while any NON-RECOVERABLE portion (e.g. GST on inputs used for exempt supplies, or blocked credits under GST law) IS included in cost.
Example 2: Partially blocked GST credit
An Indian company purchases inventory for ₹5,00,000 plus GST of ₹90,000, but is only entitled to claim ₹60,000 as input tax credit due to partial use in exempt supply activities (the remaining ₹30,000 is a "blocked credit" under GST law).
The inventory is recognised at ₹5,30,000 (₹5,00,000 + the ₹30,000 NON-recoverable GST portion), while the ₹60,000 recoverable portion is excluded from cost – an application of Ind AS 2's IDENTICAL cost principle to IAS 2, adapted to India's specific GST recoverability rules.
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Recognition as an Expense
Identical to IAS 2
The carrying amount of inventories is recognised as an expense (cost of sales) in the period the related revenue is recognised – IDENTICAL to IAS 2, with write-downs to NRV and reversals also recognised in the period they occur/reverse.
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Disclosure Requirements
Identical disclosure requirements to IAS 2
Accounting policies, cost formulas used Total carrying amount, and carrying amount classified appropriately Amount recognised as expense, write-downs, and reversals
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Critical Judgments & Estimates
Where management judgement matters most
SIGNIFICANT JUDGEMENTS
Determining recoverability of GST input tax credits at the point of purchase Grouping of similar items for NRV comparison
SIGNIFICANT ESTIMATES
Estimated selling price and costs to complete/sell for NRV Obsolescence/slow-moving inventory write-down estimates
Indian companies with MIXED taxable/exempt supply activities must carefully track GST input credit recoverability at an item or activity level to correctly determine inventory cost.
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Ind AS 2 vs IAS 2 – Full Comparison
Comprehensive comparison table
FeatureIAS 2Ind AS 2
Measurement, cost formulas, NRVStandard modelIDENTICAL – no substantive divergence
Recoverable tax exclusionGeneral "recoverable taxes excluded" principleApplied specifically to India's GST input tax credit mechanism, including partial/blocked credits
Ind AS 2 is essentially IDENTICAL to IAS 2 in substance – the meaningful Indian context is the GST input credit interaction, not any divergence in the standard's own recognition/measurement principles.
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Statement Mapping
Comprehensive event-to-statement mapping table
Event / transactionStatement(s) affectedNotes
Inventory purchaseBalance SheetRecognised at cost, excluding recoverable GST
Sale of inventoryP&LCost of sales recognised when related revenue is recognised
Write-down to NRV / reversalP&LIdentical to IAS 2
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Related Standards
Cross-reference map
StandardConnection
IAS 2The global counterpart standard, near-identically converged
Ind AS 115Governs the revenue recognition point at which cost of sales is matched
CGST/SGST Act (GST law)Determines input tax credit recoverability affecting inventory cost
Quick-reference glossary
Blocked credit
GST input tax credit that cannot be claimed under specific GST law provisions, and is therefore included in inventory cost.
CGST/SGST
Central and State Goods and Services Tax – India's dual GST structure relevant to input credit determination.
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Quick-Reference Glossary
Net realisable value
The estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale – identical to IAS 2.
GST input tax credit
A credit an Indian registered entity can claim against GST paid on eligible purchases; excluded from inventory cost to the extent recoverable.
Blocked credit
GST input tax credit that cannot be claimed under specific GST law provisions, and is therefore included in inventory cost.
CGST/SGST
Central and State Goods and Services Tax – India's dual GST structure relevant to input credit determination.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows