Question
Consider the following statements regarding the
valuation of inventories under AS 2: I. The cost of inventories includes purchase cost, conversion cost, and other costs incurred to bring the inventories to their present location and condition. II. Inventory should be valued at the higher of cost and net realizable value (NRV). III. The cost of conversion includes direct costs, fixed overheads, and variable overheads incurred during the production process.Solution
Statement I is correct: The cost of inventories includes purchase cost, conversion cost, and other costs incurred to bring the inventories to their present location and condition. Statement II is incorrect: Inventories should be valued at the lower of cost and net realizable value (NRV), not the higher. Statement III is correct: The cost of conversion includes direct costs, fixed overheads, and variable overheads.
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