1.13  Query:   

Whether general administration overheads should be included in cost for valuation of inventories.

The querist has sought the opinion of the Expert Advisory Committee as to whether, for the purpose of valuation of inventories, general administration overheads should be considered as a part of cost.

                                                                              Opinion                                    March 31, 1992

1 The Committee notes that para 16 of Accounting Standard (AS) 2 on ‘Valuation of Inventories’, issued by the Institute of Chartered Accountants of India, recommends as below:

“Costs other than production overheads are sometimes incurred in bringing inventories to their present location and condition, for example, expenditure incurred in designing products for specific customer. On the other hand, selling and distribution expenses, general administration overheads, research and development costs and interest are usually considered not to relate to putting the inventories in their present location and condition. They are, therefore, excluded from determining the valuation of inventories.”[emphasis supplied]

2. On the basis of the above, the Committee is of the opinion that general administration overheads are usually excluded from the cost for the purpose of valuation of inventories.

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