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CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

Which statement about the stock valuation in cost accounting and financial accounting is correct?

Financial accounting values closing stock at the lower of cost and net realisable value, as AS 2 requires, while cost accounting typically carries stock at cost. Selling price or replacement cost are not the standard bases for either system.

  1. AFinancial accounting values stock at cost or net realisable value, whichever is lower, whereas cost accounting may value stock at cost only and not at market priceCorrect
  2. BBoth always value stock at selling price
  3. CCost accounting values stock at selling price, while financial accounting uses cost
  4. DFinancial accounting values stock only at replacement cost

Explanation

Under Indian GAAP (AS 2), inventory in financial accounts is valued at the lower of cost and net realisable value. Cost accounts generally carry stock at cost without the NRV comparison. The other options misstate the valuation bases.

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