According to AS-2 (Valuation of Inventories), which cost formula is widely accepted for measuring historical cost of inventory? MCQ with Answer and Explanation

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According to AS-2 (Valuation of Inventories), which cost formula is widely accepted for measuring historical cost of inventory?

A. FIFO or Weighted Average Cost

B. LIFO (Last In First Out)

C. Replacement Cost

D. Next-In-First-Out (NIFO)

Answer: Option A

Solution (By JKSSB Mock Tests)

AS-2 recommends FIFO or Weighted Average Cost. LIFO is generally not permitted under Indian Accounting Standards.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

The 'Finance Act' gives effect to:

A. Financial proposals of the government for the year

B. Company law amendments

C. Insurance regulation

D. Banking regulation

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Correct Answer: Option A

Explanation:
Finance Act is passed to enact the tax proposals of the budget.

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Question #2

The formula to calculate Cost of Goods Sold (COGS) is:

A. Sales - Net Profit

B. Opening Stock - Purchases - Closing Stock

C. Opening Stock + Purchases + Direct Expenses - Closing Stock

D. Purchases + Closing Stock - Opening Stock

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Correct Answer: Option C

Explanation:
COGS accounts for all direct costs of making/buying the goods actually sold during the period.

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Question #3

S1: Depreciation is the gradual decrease in the market value of an asset. S2: Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Which statement(s) is/are correct?

A. S1 only

B. Neither S1 nor S2

C. S2 only

D. Both S1 and S2

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Correct Answer: Option C

Explanation:
Deprecation is not a valuation process but an allocation process of historical cost over the useful life. It does not measure the decrease in market value. S1 is incorrect, S2 is correct.

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