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CA Foundation · Accounting · Inventories

Kapoor Industries uses the weighted average cost formula for inventories. In the notes to its financial statements, it discloses 'Inventories are valued at lower of cost and net realisable value; cost is determined on weighted average basis.' This disclosure primarily satisfies which AS 2 requirement?

The note describes the measurement basis, lower of cost and net realisable value, and the weighted average cost formula. This is exactly the accounting policy disclosure AS 2 requires. It does not state any amount of write-down, NRV-carried inventory or pledged stock.

  1. ADisclosure of the carrying amount of inventories carried at net realisable value
  2. BDisclosure of the accounting policy and cost formula used in measuring inventoriesCorrect
  3. CDisclosure of inventories pledged as security for borrowings
  4. DDisclosure of the amount of write-down recognised as an expense

Explanation

The statement describes the basis of measurement (lower of cost and NRV) and the cost formula (weighted average). This is the disclosure of the accounting policy adopted in measuring inventories, including the cost formula. It gives no amounts for write-downs, NRV carrying values or pledges.

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