CA Foundation · Accounting · Inventories
As per AS 2 (Valuation of Inventories), at the balance sheet date inventories are generally valued at:
Inventories are valued at the lower of cost and net realisable value under AS 2. This ensures anticipated losses from falling prices are recognised, while unrealised profits are not taken into account before sale, in line with prudence.
- ALower of cost and net realisable valueCorrect
- BHigher of cost and net realisable value
- CCost only, ignoring any fall in selling price
- DNet realisable value only, ignoring cost
Explanation
AS 2 requires inventories to be valued at the lower of cost and net realisable value, so that expected losses are recognised but unrealised profits are not. Using the higher of the two would overstate stock and profit. Using cost alone ignores falls in selling price.
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