ACCA Applied Knowledge · Financial Accounting · Inventories
Which of the following costs must be EXCLUDED from the cost of inventory under IAS 2?
Abnormal amounts of wasted materials must be excluded from inventory cost and expensed when incurred. IAS 2 includes non-recoverable import duties, inward carriage and production overheads at normal capacity, because they bring inventory to its present location and condition.
- AImport duties on purchased goods that are not recoverable
- BProduction overheads based on normal capacity
- CAbnormal amounts of wasted materialsCorrect
- DTransport costs to bring goods to their present location
Explanation
IAS 2 excludes abnormal waste, storage costs (unless necessary in production), administrative overheads and selling costs from inventory cost; they are expensed. Non-recoverable import duties, normal-capacity production overheads and inward transport are all included in cost.
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