CA Foundation · Accounting · Inventories
Under AS 2, inventories are required to be valued at:
AS 2 requires inventories to be valued at the lower of cost and net realisable value. This follows prudence, so a fall in value below cost is recognised as a loss, while an unrealised gain above cost is not recorded.
- ACost or market price, whichever is higher
- BCost or net realisable value, whichever is lowerCorrect
- CNet realisable value always
- DReplacement cost always
Explanation
AS 2 requires inventories to be valued at the lower of cost and net realisable value. This reflects prudence: a loss is recognised when NRV falls below cost, but gains are not anticipated. Using the higher value or always NRV or replacement cost is not what the Standard prescribes.
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