Which method of costing is required when valuing inventory in the published financial statements under IAS 2?
Answer and explanation
Correct answer: D. Absorption costing
- Step 1: IAS 2 values inventory at cost, including costs of conversion.
- Step 2: Conversion costs include a systematic allocation of fixed production overheads, which is absorption costing.
Answer
Absorption costing.
Why not the others: Marginal costing leaves out fixed production overheads and would understate inventory. Prime costing ignores all overheads. Selling costs are excluded from inventory cost under IAS 2.
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