Case: Raw material held by Sagar Chemicals Ltd cost ₹200 per kg; its current replacement cost is ₹170 per kg. The finished product made from it costs ₹500 per unit to produce, but due to a fall in demand its net realisable value is ₹480 per unit. Under AS 2, the raw material should be valued at:

Correct answer: D) ₹170 per kg

Explanation

AS 2 does not permit raw materials to be written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Here the finished product's NRV (₹480) is below its cost (₹500), so the material must be written down, and replacement cost (₹170) may be the best available measure of its NRV.