Under IAS 2, the standard cost technique may be used to measure inventory when it:
Correct answer: B. Reasonably approximates the actual cost of inventory
- A. Always produces a value below actual cost
- B. Reasonably approximates the actual cost of inventory
- C. Eliminates the need for physical inventory counts
- D. Is applied only to imported inventory items
Explanation
Standard costs may be used for convenience when they are regularly reviewed and remain close to actual costs. The method does not remove the need for stock controls or restrict the inventory to imported goods.
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About Inventory Valuation
Inventory valuation determines the cost of unsold goods and its effect on cost of sales and profit. The work covers inventory counts, included costs, FIFO and weighted-average costing, and the rule that inventory is reported at the lower of cost and net realisable value, not simply at its expected selling price.
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