FA – May 2014 – L1 – SA – Q2 – Accounting for Inventories in Accordance with IAS 2

Identifies costs included in inventory valuation under IAS 2.

Question

According to IAS 2 on inventories, which of the following costs should be included in valuing the inventories of a manufacturing company?
A. Carriage inwards
B. Carriage outwards
C. General administrative overheads
D. Depreciation of land and building
E. Discount allowed

Answer

Explanation:
The correct answer is A because IAS 2 specifies that carriage inwards (costs incurred to bring inventories to their present location and condition) should be included in the inventory valuation. It ensures the cost of acquiring inventory reflects all direct expenses associated with bringing the items to their intended use. Other costs, like carriage outwards and administrative overheads, are typically classified as period costs rather than inventory costs.

Tags: Cost Accounting, IAS 2, Inventory Valuation, Manufacturing Costs
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2014

Uploader: Theophilus