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Which costing method is used for valuation of closing inventory for financial reporting. Since absorption and ABC costing both values inventory at full cost , which method is practically used ?
Paper F2 is not financial reporting – it is management accounting and there are therefore no rules as to how inventory should be valued.
In addition, calculations involving ABC are not in the syllabus for Paper F2.Financial reporting is Paper F3, and for financial accounts inventory must be valued at full cost. How they arrive at the full cost (i.e. how they decided to absorb fixed overheads – the traditional approach or ABC) is up to the company – there is no financial reporting rule.
However, absorbing overheads (whether traditional or ABC) cannot be examined in Paper F3.
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