Ind AS 2 Work-in-Progress NRV and Ind AS 23 Borrowing Costs

As per Ind AS 2, Inventories, Net Realisable Value (NRV) is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. It also states that NRV estimates should be based on the most reliable evidence available at the time the estimates are made. Ind AS 23, Borrowing Costs requires the capitalisation of borrowing costs that are directly attributable to the production of a qualifying asset, defined as one that takes a substantial period of time to get ready for sale or use.

This document examines whether it is appropriate to determine the NRV of work-in-progress inventory when the production cycle extends over several years. It highlights the challenge of estimating NRV in situations where no active market exists for the inventory in its incomplete state. The focus is on whether the expected selling price at completion can be used as a basis, after adjusting for future costs to complete, holding costs, selling expenses, and the time value of money. The case also explores whether borrowing costs can be included in the inventory valuation under Ind AS 23, considering the prolonged production period.