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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Under the Ind AS framework, inventories are measured at which basis at the reporting date?

Inventories are measured at the lower of cost and net realisable value. This ensures expected losses are recognised while unrealised gains are not, so stock is not overstated. The higher of cost and NRV, or replacement cost, is not the prescribed basis.

  1. ALower of cost and net realisable valueCorrect
  2. BHigher of cost and net realisable value
  3. CReplacement cost always
  4. DSelling price less profit margin of the industry

Explanation

The inventories standard requires measurement at the lower of cost and net realisable value, in line with prudence so that losses are recognised but unrealised gains are not. The higher-of basis would overstate stock, and replacement cost or margin-based values are not the prescribed basis.

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