It seems like the answer options are missing from your query. However, the LIFO (Last-In, First-Out) method is not allowed under IAS 2.
Last in first out (LIFO) is not permitted. When inventory is sold, the carrying amount is recognised as an expense in the period in which the related revenue is recognised.
Choosing the Right Inventory Valuation Method
The main difference between International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) is that IFRS does not allow the LIFO method.
Note: Ind AS 2 Inventories does not permit using LIFO (last-in-first-out). This standard shall be applied in • selecting and applying accounting policies; • accounting for changes in accounting policies; • accounting for changes in accounting estimates; and • accounting for corrections of prior period errors.
IAS 2 prohibits LIFO; US GAAP allows its use.
Unlike US GAAP, IAS 2 prohibits LIFO as a cost formula. The International Accounting Standards Board (IASB® Board) eliminated the use of LIFO because of its lack of representational faithfulness of inventory flows.
Investors understand that older costs leave first, making the income statement easier to read. If you sell across borders, IFRS requires FIFO or weighted average—never LIFO.
As a result, IAS 2 permits the use of either the first-in, first-out (FIFO) method or a weighted average cost formula to represent inventory movements.
LIFO is banned under IFRS due to potential financial distortions. LIFO can understate company earnings and lead to outdated inventory values.
IAS 2 requires that inventories are measured at the lower of cost and net realisable value. 'Cost' includes all costs of bringing the item to its current location and condition. The cost of inventories should be assigned using either the first-in first-out or weighted average cost method.
FIFO (First In, First Out): Uses oldest costs; higher profit margin. LIFO (Last In, First Out): Uses newest costs; lowers taxable profit (U.S. only). WAC (Weighted Average Cost): Averages all item costs; smooth for high volumes. Specific Identification: Uses exact cost per item; best for unique products.
IMPORTANT: LIFO is only an acceptable inventory valuation method in the United States using the Generally Accepted Accounting Principles (GAAP). LIFO is specifically prohibited under International Financial Reporting Standards (IFRS).
FIFO is compliant with both GAAP and IFRS, making it widely accepted internationally. LIFO, however, is only allowed under GAAP and is prohibited by IFRS, meaning businesses using LIFO cannot comply with international financial reporting standards.
AS2 (Applicability Statement 2) is a popular protocol for secure and reliable transmission of structured business data over the internet — including EDI documents. It enables encryption, digital signatures, and delivery receipts (MDNs), making it ideal for B2B communication across industries.
Exclusions to the Scope of this Standard
This standard also does not apply to the measurement of the following inventories: Agricultural and forest products, agricultural produce after harvest, and minerals and mineral products that are measured at net realisable value.
Explanation of Correct Answer:
LIFO (Last In, First Out) is prohibited under International Financial Reporting Standards (IFRS) because it does not accurately reflect the physical flow of inventory in most businesses.
IFRS and US GAAP allow companies the choice of using either of the following inventory valuation methods: specific identification; first-in, first-out (FIFO); and weighted average cost. US GAAP also allows the use of the last-in, first-out (LIFO) method.
There are 6 valuation methods:
LIFO is not allowed under International Financial Reporting Standards (IFRS), which are used in many countries outside the United States. This can create complications for multinational companies or those considering international expansion.
Globally accepted: FIFO is allowed under Generally Accepted Accounting Principles (GAAP) in the United States and International Financial Reporting Standards (IFRS).
IAS 2 requires the cost of inventories to be recognised as an expense in the period in which the related revenue is recognised. The cost of inventories that are not expected to be sold within the normal operating cycle of the business are recognised as an expense in the period in which they are consumed or realised.
All inventories, except for: Work in progress under construction/service contracts (IFRS 15 *Revenue from Contracts with Customers*). Financial instruments (IFRS 9 *Financial Instruments*). Biological assets related to agricultural activity and agricultural produce at the point of harvest (IAS 41 *Agriculture*).
FIFO is allowed under both UK GAAP and IFRS, while LIFO is not permitted by either. FIFO stands for 'First In, First Out,' which means that the oldest inventory you received is sold first, while the newer inventory is sold later.
The four most common inventory costing methods are:
FIFO. LIFO. Weighted average. Specific identification.