Skip to content

CS Executive · Corporate Accounting and Financial Management · Accounting Standards

Under AS 2 Valuation of Inventories, as applicable to companies not following Ind AS, inventories are ordinarily valued at:

Inventories are valued at the lower of cost and net realisable value under AS 2. This follows prudence: expected losses are recognised when NRV falls below cost, while unrealised profits are not anticipated by writing stock up above cost.

  1. ALower of cost and net realisable valueCorrect
  2. BHigher of cost and net realisable value
  3. CReplacement cost at the balance sheet date
  4. DSelling price less normal profit margin

Explanation

AS 2 requires inventories to be measured at the lower of cost and net realisable value. The higher-of rule would overstate assets and anticipate profit, so it is wrong. Replacement cost is not the general measurement basis under AS 2.

Did you get it right without looking?

One question tells you little. A timed set on Accounting Standards shows your real accuracy, how long you take and where you lose marks.

Practise Accounting StandardsFree diagnostic mock

More Accounting Standards questions