ACCA Applied Knowledge · Financial Accounting · Inventories
Under IAS 2 Inventories, inventories must be measured at which of the following?
IAS 2 requires inventories to be valued at the lower of cost and net realisable value. This follows prudence so that assets are not overstated. Losses are recognised when selling price less costs to complete and sell falls below cost, while expected gains are not anticipated.
- AThe lower of cost and net realisable valueCorrect
- BThe higher of cost and net realisable value
- CReplacement cost at the reporting date
- DSelling price less the normal profit margin
Explanation
IAS 2 requires inventories to be measured at the lower of cost and net realisable value, applied item by item or to groups of similar items. The higher-of rule would overstate assets. Replacement cost is not the IAS 2 measurement basis for finished goods.
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