Inventory refers to goods held by a business for sale or for use in production. Under AS-2 (Valuation of Inventories), inventory includes raw materials, work-in-progress, and finished goods. Proper inventory valuation is critical as it directly impacts cost of goods sold and net profit. Inventories must be valued at lower of cost or net realizable value (NRV). Cost includes all expenditures incurred to bring inventory to present location and condition: purchase price plus import duties, transportation, handling, direct labor. NRV is selling price minus estimated costs of completion and costs to be incurred to make sale. Periodic vs perpetual inventory systems differ in recording method. Specific identification method identifies actual cost of each item. Weighted average, FIFO, LIFO are other methods used. Inventory must be recorded properly in financial statements under current assets. Stock taking is essential to verify physical inventory against book records. Adjustment for inventory shrinkage, obsolescence, and slow-moving items is necessary. ICAI guidance on inventory valuation ensures consistency and comparability across companies. Exam tip: Understand the four main inventory valuation methods and when each is used; grasp the difference between cost and NRV concepts thoroughly.