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CA Foundation · Accounting · Inventories

Under AS 2 (Valuation of Inventories), the specific identification method of cost is required for which of the following?

Specific identification is required for inventory segregated for specific projects and for items that are not ordinarily interchangeable. Interchangeable bulk items must use FIFO or weighted average cost instead, because tracing individual costs to such items is not meaningful or practical.

  1. AItems of inventory that are ordinary interchangeable items bought in bulk
  2. BInventories of goods segregated for specific projects, and goods or services produced and segregated for specific projectsCorrect
  3. CFungible items such as bags of cement held in a godown
  4. DAny inventory of a trader whose purchase prices change frequently

Explanation

AS 2 requires specific identification of individual costs for items that are not ordinarily interchangeable and for goods or services produced and segregated for specific projects. Ordinary interchangeable items must use FIFO or weighted average, so the other options are wrong.

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