Disclosure Practices of Cost Formulae Used in Valuation of Finished Goods Inventory in Indian Manufacturing Industry (Special Reference to Ind AS-2)

Inventories happens to be the largest single line item in trading firms and public utilities and the second largest item in many manufacturing firms after fixed assets. So it is very important for every company having the inventory to follow a consistent and well-devised method of inventory valuation in preparing financial statements. Failure to do so will results in inaccurate and inconsistent financial statement and will also result in inaccurate costing of goods sold during any accounting period. Therefore a proper disclosure of valuation principle is need of the hour. The quality of corporate disclosure influences to a great extent the quality of investment decisions made by investors. Accounting standard 2 has specifically devised for this purpose. Here an attempt has been made to compare between the actual prevailing practices of disclosure of cost formulae in the Indian manufacturing industry and disclosure requirement of methods of cost formulae suggested in the AS-2 i.e. whether the cost formula used in inventory valuation has been disclosed fully by different sectors of Indian manufacturing industry. In order to examine the objective of present research paper fifty three sample units have been analyzed. The disclosure pattern is studies under four types such as: Method:-1 (M1):- Merely mentioning that finished goods inventory has been valued at cost or at cost/NRV, whichever is less without disclosing the cost formula. Method :-2 (M2):- In addition to mentioning at what value inventory has been valued, the cost formula is also disclosed as FIFO/WEIGHTED AVERAGE COST or techniques of determining cost has been disclosed. Method:-3 (M3):- Disclosed of cost formula as WEIGHTED AVERAGE COST along with the type of average used. Method:-4 (M4):- Different component of same item or different items of inventory are valued differently i.e. some at Cost and some at weighted average cost/FIFO. Only capital goods industrial sector followed 100% disclosure throughout study period whereas lower disclosure has been identified in automobiles industries regarding disclosure of cost formulae used for valuation of finished goods. Our null hypothesis is accepted. It clearly indicates that there is no significant difference among different sectors of Indian manufacturing industry regarding different methods of valuation of Cost formula used in finished goods inventory