PRC-1 · Chapter 7 · Question 90 of 100
An entity purchases 100 units of raw materials. 5 units are completely destroyed during transit and are unsalvageable (abnormal loss). How is the cost of the 5 destroyed units accounted for?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It is excluded from inventory cost and charged immediately as an expense to Profit or Loss.
Explanation
IAS 2 states that abnormal amounts of wasted materials must not be included in the cost of inventory, but rather recognized as an expense in the period in which they are incurred.
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