CA Foundation · Accounting · Inventories
Under AS 2, which of the following is a correct statement about the cost formulas for inventories?
Specific identification of individual costs is required for items that are not ordinarily interchangeable and for goods produced and segregated for specific projects. For interchangeable items AS 2 allows FIFO or weighted average, and it does not permit LIFO.
- ALIFO is the preferred formula for items that are ordinarily interchangeable
- BSpecific identification is used for items that are not ordinarily interchangeable or are segregated for specific projectsCorrect
- CWeighted average cost may be used only for raw materials and not for finished goods
- DFIFO cannot be used when prices are rising
Explanation
AS 2 requires specific identification of costs for items that are not ordinarily interchangeable and for goods produced and segregated for specific projects. For interchangeable items, FIFO or weighted average is used. LIFO is not permitted by AS 2, and FIFO or weighted average can be applied to any category of inventory.
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