Identification of COVID Related Abnormal Expenses Losses and Inventory Valuations


Whole of the world is experiencing entirely unprecedented situation wherein almost all the businesses have been shut or were shut. The world practically has come to a standstill wherein Economic cycle has touched its bottom but to rise from the bottom, there has to be some stimulus from the governments.

 Various business organisations are giving astronomical figures to be considered as business losses suffered by various economies. 

Institute of Cost Accountants of India a primary accounting body created by an Act of Parliament has come out with an advisory providing guidelines for computation of losses due of COVID-19 situation. Not only this, the same is required to be reported in the cost audit reports being filed with Ministry of Corporate Affairs Government of India. The figures are required to be reported as below in the reconciliation statement of costing and financial profits.

 The figure given below in reconciliation statement is required to be approved by the Board of Directors of the Companies and certified by the independent Cost Auditors where cost audit is applicable or to be shown in cost records where there is no cost audit but maintenance of cost records under section 148 of the Companies act is Mandatory.

 COVID 19 - Unabsorbed Abnormal Cost  XXXXXX

 By releasing the advisory, an attempt has been made to assist various governments to identify the ACTUAL COVID-19 losses being claimed by various organisations. The advisory may help the policy makers in estimation of the overall ipat of COVID-19 losses by extrapolating the figures reported by the Board of Directors and vetted by independent cost auditors.

 ICAI-CMA has set the stage for identification of COVID-19 losses/costs in respect of corporates especially under section 148 of the companies act 2013. Ministry of Corporate Affairs can ask all companies to follow the advisory and report the same in the audited cost records / financials of 2019-20 and work out the same separately for succeeding periods and report to concerned ministries for policy formulations


Inventory Valuation:

 The companies are required to keep into mind the impact of COVID -19 expenses on total costs and must exclude the same from the inventory valuation, if included in the same. Attention is drawn to "para 16 of IND AS-2 Inventories' where it has been categorically stated that abnormal costs need to be excluded from the inventory valuations.

 "16 Examples of costs excluded from the cost of inventories and recognised as expenses in the period in which they are incurred are: (a) abnormal amounts of wasted materials, labour or other production costs;' (b) The COVID-19 advisory with regard to treatment of expenses issued by Institute of Cost Accountants of India is given below as Annexure. 




Disclaimer: The views and opinions expressed in this article are those of the author himself and do not necessarily reflect the official policy or position of any organization excepting the specific advisory.



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