Skip to content

CA Foundation · Accounting · Inventories

Under AS 2, which of the following is a correct treatment when valuing raw materials at the balance sheet date?

Raw materials are written down below cost only when the finished products they will go into are expected to sell below cost. If finished goods will sell at or above cost, the materials stay at cost even if their market price has fallen.

  1. ARaw materials are always written down to replacement cost when prices fall
  2. BRaw materials are written down below cost only if the finished products in which they will be used are expected to sell below costCorrect
  3. CRaw materials are never written down below cost
  4. DRaw materials are always valued at the net realisable value of the finished goods

Explanation

AS 2 says materials held for use in production are not written down below cost if the finished products in which they will be incorporated are expected to sell at or above cost. A write-down is needed only when the finished goods are expected to sell below cost, and then replacement cost may be the best estimate of NRV.

Did you get it right without looking?

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

Practise InventoriesFree diagnostic mock

More Inventories questions