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ACCA Applied Skills · Financial Reporting · Inventories and agriculture

Under IAS 2, which of the following statements about the cost formulas permitted for inventories is correct?

FIFO and weighted average cost are both permitted, and the same formula must be applied to all inventories of a similar nature and use. LIFO is prohibited, and specific identification applies to non-interchangeable items rather than interchangeable ones.

  1. ALIFO is permitted provided it is applied consistently each year
  2. BAn entity must use the same cost formula for all inventories regardless of their nature or use
  3. CFIFO and weighted average cost are both permitted, and the same formula must be used for inventories having a similar nature and useCorrect
  4. DSpecific identification is required for all inventories that are interchangeable

Explanation

IAS 2 prohibits LIFO. Specific identification is required for items not ordinarily interchangeable or segregated for specific projects, not for interchangeable items. Different formulas may be used for inventories of differing nature or use.

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