PRC-1 · Chapter 7 · Question 42 of 100
Which of the following best explains why closing inventory is deducted in the Cost of Sales calculation?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Because the matching concept requires that the cost of unsold goods is removed from expenses and deferred to the next period.
Explanation
Purchases account for everything bought. To find the cost of only what was *sold*, we must subtract the cost of what remains *unsold* (closing inventory). This perfectly aligns with the matching concept.
More IAS 2: Inventories MCQs
- Q44What is the primary reason IAS 2 requires inventory to be written down to Net Realizable Value when it falls below cost?
- Q45Are borrowing costs (such as interest on a short-term bank loan used to buy raw materials) included in the cost of inventory?
- Q46A merchant bought 100 bags of cement at a retail price of Rs. 200 subject to a 5% trade discount. What is the gross purchase value…
- Q47Which of the following best describes the 'Retail Method' of estimating inventory?
- Q48When raw materials are incorporated into a finished product, and the finished product is expected to be sold at a loss, how should the raw…