CA Foundation · Accounting · Inventories
As per AS 2 (Valuation of Inventories), at the balance sheet date inventories are normally valued at:
Inventories are valued at the lower of cost and net realisable value. This follows prudence: expected losses from falling prices are recognised at once, while unrealised profits are not recorded before the goods are actually sold.
- ACost or net realisable value, whichever is lowerCorrect
- BCost or net realisable value, whichever is higher
- CReplacement cost in all cases
- DSelling price less normal profit margin
Explanation
AS 2 requires inventories to be valued at the lower of cost and net realisable value. This follows prudence, so anticipated losses are recognised but anticipated gains are not. The 'higher of' option would recognise unrealised profit.
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