Under IAS 2 Inventories, items of inventory that are used by business entity as components in a self-constructed property asset are required to be:
A) aggregated into the 'cost of sales' expense in the period in which the items are used;
B) expensed directly into equity in the period in which the items are used;
C) capitalised and depreciated;
D) added to a 'property construction' provision account.

Question

Quizplus · Accepted Answer

Under IAS 2, items of inventory that are used by business entity as components in a self-constructed property asset are required to be capitalised and depreciated as part of the cost of the property asset. This treatment is consistent with the principle of matching costs with revenues and recognizes that the inventory items are consumed in the production of the property asset. Therefore, choice C is the correct answer.

Under IAS 2 Inventories, Items of Inventory That Are Used