Accounting Treatment of Storage Costs Incurred During the Production Cycle Under Ind AS Framework

Ind AS 2, which deals with inventories, explains that the cost of inventory includes all costs needed to bring the inventory to its current condition and location. This includes the cost of raw materials, direct labour, and other production-related expenses. In some cases, even storage costs can be included, but only if they are clearly part of the production process before the product is completed.

The accounting treatment of storage costs varies depending on whether they are incurred during the production process or after the completion of production. Sometimes, products are kept in special storage conditions for a certain period so they can develop or improve before they are ready for sale. On the other hand, storage of finished goods that are already ready for sale does not change the product in any way. It simply holds the product until it is sold. Thus, if the storage is a necessary step in the process of getting the product ready, it is seen differently from storage that happens after production is done. This document helps explain how to decide whether storage costs should be included in the value of inventory or treated as a separate expense based on their purpose and timing.

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