CMA Intermediate · Corporate Accounting and Auditing · Inventories (Ind AS 2)
Under Ind AS 2, which of the following is included in the costs of conversion of inventories?
Depreciation of the factory building used in production is included. Ind AS 2 treats depreciation and maintenance of factory buildings and equipment as fixed production overheads, which are systematically allocated to conversion cost. Sales, advertising and head office costs are not incurred in converting materials.
- ADepreciation of the factory building used in productionCorrect
- BSalary of the sales manager
- CDepreciation of the head office building
- DAdvertising expenses for the finished product
Explanation
Conversion costs include a systematic allocation of fixed production overheads such as depreciation and maintenance of factory buildings and equipment. Selling, advertising and head office costs do not relate to converting materials into finished goods, so they are not inventory costs.
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