Which cost is normally excluded from the cost of inventory under IAS 2?
Correct answer: C. Abnormal amounts of wasted materials
- A. Import duties on purchased goods
- B. Direct labour used in production
- C. Abnormal amounts of wasted materials
- D. Freight costs incurred to bring goods to the warehouse
Explanation
Abnormal waste of materials, labour or other production costs is recognised as an expense rather than included in inventory cost. Import duties, direct production labour and necessary transport costs can form part of inventory cost.
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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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More Inventory Valuation questions
A company buys 500 units at Rs. 20 each and 300 units at Rs. 24 each. If it sells 400 units and uses FIFO, the cost of goods sold is:
Net realisable value of inventory is best defined as:
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If ending inventory is understated by Rs. 10,000, assuming no other errors, what is the effect on current-year profit?
Specific identification is most appropriate for inventory consisting of:
Which item is normally included in the cost of inventory under IAS 2?