FA – May 2017 – L1 – SA – Q9 – Accounting for Inventories in Accordance with IAS 2

Identifies the appropriate valuation method during liquidation.

Question

Which of the following valuation methods should be used when an entity is faced with liquidation?
A. Fair value
B. Historical cost
C. Current cost
D. Realisable value
E. Present value

Answer

Answer: D. Realisable value

Explanation: During liquidation, assets are valued based on the realizable value, which is the amount the entity expects to receive from selling the assets. This method best reflects the entity’s ability to meet obligations by liquidating assets. Other methods like fair value or historical cost are more appropriate for going concerns, not for liquidation purposes.

Tags: Liquidation, Realizable value, Valuation Methods
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2017

Uploader: Kwame Aikins