BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
According to IAS 2 Inventories, which of the following costs should be included in valuing the inventories of a manufacturing entity?(1) Carriage inwards(2) Carriage outwards(3) Depreciation of factory plant(4) General administrative overheads
A
All four items
B
(1), (2) and (4) only
C
(2) and (3) only
D
(1) and (3) only
Explanation: 

Detailed explanation-1: -The cost of inventories includes all costs of purchase, costs of conversion (direct labour and production overhead) and other costs incurred in bringing the inventories to their present location and condition.

Detailed explanation-2: -IAS 2 requires that those assets that are considered inventory should be recorded at the lower of cost or net realisable value. Cost not only includes the purchase cost but also the conversion costs, which are the costs involved in bringing inventory to its present condition and location, such as direct labour.

Detailed explanation-3: -Measurement of inventories For items that are interchangeable, IAS 2 allows the FIFO or weighted average cost formulas.

Detailed explanation-4: -In Inventory Cost should include all: costs of purchase (including taxes, transport, and handling) net of trade discounts received. costs of conversion (including fixed and variable manufacturing overheads) including depreciation of factory plant.

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