Controllership · Month Close · Audit Readiness

Inventory Count and NRV Testing: AS 2 Evidence Pack

Finin2min Controllership Desk·June 2026·9 min readINVENTORYValidated: 17 June 2026

Inventory is easy to overstate when physical count, costing and NRV review are weak. Finance needs evidence that stock exists, belongs to the company and is recoverable.

Detailed analysis

Why this matters
AS 2 deals with valuation of inventories. In practice, the controller must reconcile physical count, system stock, costing method, slow-moving inventory, damaged stock and net realisable value.

Practical example

Example
A D2C brand has 12,000 units of old packaging. Cost is ₹80 per unit, expected selling price after discount is ₹55 and selling cost is ₹5. Finance prepares NRV test and writes down inventory where cost exceeds recoverable value.

Evidence and control checklist

Area	What to check	Evidence to save
Physical count	Quantity, location and ownership.	Count sheets, photos and variance report.
Costing	Purchase cost, conversion cost and allocation method.	Cost build-up and inventory ledger.
Slow-moving stock	Ageing, expiry, damage and obsolescence.	Inventory ageing and sales movement report.
NRV testing	Expected selling price less selling costs.	NRV working and management approval.
Audit trail	Count attendance, adjustments and final posting.	Stock reconciliation and journal entries.

Common mistakes

Avoid these mistakes

Relying only on ERP stock.
No cut-off between goods-in-transit and warehouse stock.
Ignoring obsolete/damaged inventory.
No NRV working for slow-moving items.
Posting count adjustment without approval.

Validated source note

Validated on 17 June 2026
Based only on official India Code, MCA and ICAI source pages listed below. Check the latest Companies Act, Schedule III, accounting standards, Ind AS/AS applicability and auditor guidance before closing or filing.

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Official sources used

This article is intentionally source-limited to official India Code, MCA and ICAI material. Source validation date: 17 June 2026. Verify final positions with latest Companies Act, Schedule III, accounting standards, Ind AS/AS applicability and auditor guidance before closing or filing.

FAQs

What is NRV? ▾

Net realisable value is expected selling price less estimated selling/completion costs.

Why physical count matters? ▾

It proves existence and quantity of inventory.

Should slow-moving stock be tested? ▾

Yes. It may need write-down.

What supports inventory valuation? ▾

Count sheets, cost records, ageing and NRV working.

Who should approve write-down? ▾

Finance/controller with business owner approval.