The correct answer is D. The basis and policy of valuation of inventory should not clearly be stated.
The International Accounting Standard-2 (IAS 2) lays down guidelines for inventory valuation and presentation. It requires that inventory be valued at the lower of cost and net realizable value. Cost is defined as the purchase price, including import duties and other taxes, less any discounts and allowances. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.
IAS 2 also requires that the basis and policy of valuation of inventory be clearly stated in the financial statements. This is important because it allows users of the financial statements to understand how the inventory has been valued and to compare the results of different companies.
Option A is true. The inventory should be valued at historic cost or net realizable value, whichever is lower. This means that if the inventory is worth less than what it cost to purchase, it should be written down to its net realizable value.
Option B is also true. The cost of damaged raw material should be added in arriving at the value of the stock of manufactured goods. This is because the cost of the damaged raw material is part of the cost of producing the finished goods.
Option C is also true. Usually either the FIFO or the Weighted Average Cost Method should be used for valuation of inventory. The FIFO method assumes that the goods that were purchased first are also sold first. The Weighted Average Cost Method assumes that the cost of goods sold is based on the average cost of all the goods on hand.
Therefore, the only option that is not true is D. The basis and policy of valuation of inventory should not clearly be stated.