Inventory Valuation Twist -AS 2 | Going Concern vs Non-Going Concern | Why ₹40,000 Becomes ₹47,000?

Same inventory… ₹40,000 in one case and ₹47,000 in another. How is that possible? The answer lies in one key assumption: Going Concern. When a business is a going concern, it means operations will continue in the future. As per Accounting Standard 2 (AS 2), inventory is valued at cost or net realizable value (NRV), whichever is lower. Example: Cost = ₹40,000 NRV = ₹47,000 Value considered = ₹40,000 This follows the principle of prudence, where expected losses are recognized but unrealized gains are not. However, when a business is not a going concern, the situation changes completely. The focus is no longer on continuing operations, but on selling assets and recovering cash. In this case: Inventory is valued at realizable value (NRV) Liabilities are recorded at their payable value Using the same example: Cost = ₹40,000 NRV = ₹47,000 Value considered = ₹47,000 The rule of “lower of cost or NRV” no longer applies because the objective shifts from caution to actual realization. Final takeaway: Going Concern = Conservative approach Non-Going Concern = Realization approach This is a small concept but a major exam differentiator. For detailed concept clarity and exam-oriented preparation, join our live classes. #CAInter #CAFinal #AccountingConcepts #InventoryValuation #AS2 #CommerceStudents #CAStudents #StudySmart #ExamPreparation #ConceptClarity