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CA Foundation · Accounting · Inventories

According to AS 2, inventories are assets that are held:

AS 2 defines inventories as assets held for sale in the ordinary course of business, assets in the process of production for such sale, and materials or supplies to be consumed in production or in rendering services. This covers raw materials, WIP and finished goods, not just goods bought for resale.

  1. AFor sale in the ordinary course of business, in the process of production for such sale, or as materials to be consumed in production or servicesCorrect
  2. BOnly for resale in the same condition as purchased
  3. CFor use over more than one accounting period to produce goods
  4. DFor sale only if the market price exceeds cost

Explanation

AS 2 defines inventories as assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in production or rendering of services. Option B is too narrow because it omits WIP and raw materials. Option C describes fixed assets.

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