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    Question

    In accordance with Ind AS 2, explain how the item should be measured:

    One of Company's product lines is beauty products, particularly cosmetics such as lipsticks, moisturizers and compact make-up kits. The company sells hundreds of different brands of these products. Each product is quite similar, is purchased at similar prices and has a short lifecycle before a new similar product is introduced. The point of sale and inventory system is not yet fully functioning in this department. The sales manager of the cosmetic department is unsure of the cost of each product but is confident of the selling price and has reliably informed you that the Company, on average, make a gross margin of 65% on each line.

    A Standard Cost method Correct Answer Incorrect Answer
    B Specific Identification method Correct Answer Incorrect Answer
    C FIFO Correct Answer Incorrect Answer
    D Retail Method Correct Answer Incorrect Answer

    Solution

    The retail method can be used for measuring inventories of the beauty products. The cost of the inventory is determined by taking the selling price of the cosmetics and reducing it by the gross margin of 65% to arrive at the cost.

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