Question：Which of the following statements about IAS 2 Inventories are correct?
A. Production overheads should be included in cost on the basis of a company's normal level of activity in the period.
B. In arriving at the net realisable value of inventories, trade discounts and settlement discounts must be deducted.
C. In arriving at the cost of inventories, FIFO, LIFO and weighted average cost formulas are acceptable.
D. It is permitted to value finished goods inventories at materials plus labour cost only, without adding production overheads.
The correct answer is:Production overheads should be included in cost on the basis of a company's normal level of activity in the period.
Trade discounts should be deducted but not settlement discounts. IAS 2 does not allow the use of LIFO. Production overheads are part of the costs of conversion of finished goods and do form part of the valuation.
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