Inventory Count and NRV Testing: AS 2 Evidence Pack
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.
Use the Inventory Turnover, Days and Carrying Cost Calculator to apply these points to your figures or facts.
Detailed analysis
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
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. |
For the connected rule, example or next step, see Business Expense Evidence for Freelancers.
Common 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.
Official reference framework
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.
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.
- MCA: Accounting Standard (AS) 2 Valuation of Inventories
- ICAI: Accounting Standards as on February 1, 2022
- India Code: Companies Act, 2013 Section 128 - Books of account
- India Code: Schedule III to the Companies Act, 2013
FAQs
Net realisable value is expected selling price less estimated selling/completion costs.
It proves existence and quantity of inventory.
Yes. It may need write-down.
Count sheets, cost records, ageing and NRV working.
Finance/controller with business owner approval.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- MSME & Business Operations
- Official starting point
- msme.gov.in