CA Foundation · Accounting · Inventories
As per AS 2 (Valuation of Inventories), which of the following costs is excluded from the cost of inventories and recognised as an expense in the period in which it is incurred?
Abnormal wastage of materials is excluded from inventory cost under AS 2 and charged to the profit and loss account of the period. It is not a necessary cost of bringing inventory to its present location and condition, whereas freight inwards, non-refundable duties and normal fixed overheads are included.
- AFreight inwards on purchase of raw materials
- BAbnormal wastage of materials in the factoryCorrect
- CNon-refundable import duties on materials
- DFixed production overheads allocated on normal capacity
Explanation
AS 2 excludes abnormal amounts of wasted materials, labour or other production costs, storage costs not needed in production, administrative overheads not related to production, and selling costs. Freight inwards, non-refundable duties and normal-capacity fixed overheads are all part of cost of inventories.
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