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As per the definition in AS 2, inventories are assets that are:

Inventories are 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. Long-term use assets and investments are not inventories.

  1. AHeld 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 servicesCorrect
  2. BHeld for long-term use in the business to earn revenue over several accounting periods
  3. CHeld only for sale and not including raw materials or consumables
  4. DHeld as investments to earn dividend and capital appreciation

Explanation

AS 2 defines inventories in three parts: goods held for sale in the ordinary course, goods in process of production for such sale, and materials or supplies to be consumed in production or in rendering services. Option B describes fixed assets. Option C wrongly excludes raw materials and consumables. Option D describes investments.

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