Question 1

The definition of inventories includes assets in the form of materials or supplies to be consumed in the production process or in rendering of services:

Accepted Answer

A) True 
 B)False

Question 2

Video Productions Ltd commenced business manufacturing video tapes on 1 July 2002. Summary data for the first full year of production are:
 
Packaging and delivery are essential to be able to sell the product. What total value should be attributed to finished goods inventory in the financial statements in accordance with AASB 102?

Accepted Answer

A)  $66,400 
B)  $72,000 
C)  $46,400 
D)  $50,000 
E)  None of the given answers. 
A)  $66,400 
B)  $72,000 
C)  $46,400 
D)  $50,000 
E)  None of the given answers.

Question 3

Fixed production costs are those that, within normal operating limits:

Accepted Answer

A)  Vary in relation to production volume by a fixed amount. 
B)  Remain a constant per unit amount as volume changes. 
C)  Vary in relation to the levels of input but remain constant at varying levels of output. 
D)  Remain a constant amount at varying production volume levels. 
E)  None of the given answers. 
A)  Vary in relation to production volume by a fixed amount. 
B)  Remain a constant per unit amount as volume changes. 
C)  Vary in relation to the levels of input but remain constant at varying levels of output. 
D)  Remain a constant amount at varying production volume levels. 
E)  None of the given answers.

Question 4

In times of rising prices for inventory, which of the following is true?

Accepted Answer

A)  LIFO adopters would report higher cost of goods sold and lower ending inventory than FIFO adopters. 
B)  FIFO adopters would report higher profits and lower ending inventory than LIFO adopters. 
C)  LIFO adopters would report higher profits and higher ending inventory than FIFO adopters. 
D)  FIFO adopters would report higher cost of goods sold and higher ending inventory than LIFO adopters. 
E)  None of the given answers. 
A)  LIFO adopters would report higher cost of goods sold and lower ending inventory than FIFO adopters. 
B)  FIFO adopters would report higher profits and lower ending inventory than LIFO adopters. 
C)  LIFO adopters would report higher profits and higher ending inventory than FIFO adopters. 
D)  FIFO adopters would report higher cost of goods sold and higher ending inventory than LIFO adopters. 
E)  None of the given answers.

Question 5

According to AASB 102 material information relating to which of the following must be disclosed?

Accepted Answer

A)  The carrying amount of closing inventories included in equity accounted profits. 
B)  The carrying amount of inventories classified as non-current assets. 
C)  The aggregate amount of inventory recorded at recoverable amount. 
D)  The carrying amount of inventories revalued upwards as at the end of the period. 
E)  None of the given answers. 
A)  The carrying amount of closing inventories included in equity accounted profits. 
B)  The carrying amount of inventories classified as non-current assets. 
C)  The aggregate amount of inventory recorded at recoverable amount. 
D)  The carrying amount of inventories revalued upwards as at the end of the period. 
E)  None of the given answers.

Question 6

The cost of sub-contracted work is not included in costs of conversion for the purposes of calculating the cost of inventory:

Accepted Answer

A) True 
 B)False

Question 7

The value of inventory reported in the financial statements under AASB 102 may be reported at an amount lower than its original cost:

Accepted Answer

A) True 
 B)False

Question 8

The cost-flow assumption selected for inventory costing purposes should always reflect the physical flow of goods out of inventory:

Accepted Answer

A) True 
 B)False

Question 9

According to AASB 102, one or more of which set of methods should be used to apply the costs of inventories to particular items of inventory?

Accepted Answer

A)  Specific identification, LIFO or FIFO. 
B)  Absorption costing, weighted average costing or LIFO. 
C)  FIFO, specific identification or weighted average cost. 
D)  Weighted average costing, ABC costing or FIFO. 
E)  None of the given answers. 
A)  Specific identification, LIFO or FIFO. 
B)  Absorption costing, weighted average costing or LIFO. 
C)  FIFO, specific identification or weighted average cost. 
D)  Weighted average costing, ABC costing or FIFO. 
E)  None of the given answers.

Question 10

Upward revaluation of inventory is permitted for as long as all assets in same inventory class are revalued.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is correct in relation to the costing of inventories?

Accepted Answer

A)  Direct costing treats fixed production costs as an expense of the period and is not permitted as a method for valuing inventories under AASB 102. 
B)  Absorption costing treats fixed production costs as a product cost, allocating them to the goods produced, and is not permitted as a method for valuing inventories under AASB 102. 
C)  Absorption costing treats fixed production costs as an expense of the period and is the required method for valuing inventories under AASB 102. 
D)  Direct costing treats fixed production costs as a product cost, allocating them to the goods produced, and is not permitted as a method of valuing inventory under AASB 102. 
E)  None of the given answers. 
A)  Direct costing treats fixed production costs as an expense of the period and is not permitted as a method for valuing inventories under AASB 102. 
B)  Absorption costing treats fixed production costs as a product cost, allocating them to the goods produced, and is not permitted as a method for valuing inventories under AASB 102. 
C)  Absorption costing treats fixed production costs as an expense of the period and is the required method for valuing inventories under AASB 102. 
D)  Direct costing treats fixed production costs as a product cost, allocating them to the goods produced, and is not permitted as a method of valuing inventory under AASB 102. 
E)  None of the given answers.

Question 12

AASB 102 provides that inventories must be valued at the lower of cost and net realisable value for groups of homogeneous items where it is impracticable to measure them on an item-by-item basis:

Accepted Answer

A) True 
 B)False

Question 13

The measurement of inventories is no different for not-for-profit entities.

Accepted Answer

A) True 
 B)False

Question 14

The cost of inventory is defined by AASB 102 as including:

Accepted Answer

A)  The cost of purchase and conversion. 
B)  Duties and taxes on purchase of goods or services for sale. 
C)  The cost incurred in the normal course of operations to bring the inventories to their present location and condition. 
D)  The deduction of relevant rebates and subsidies. 
E)  All of the given answers. 
A)  The cost of purchase and conversion. 
B)  Duties and taxes on purchase of goods or services for sale. 
C)  The cost incurred in the normal course of operations to bring the inventories to their present location and condition. 
D)  The deduction of relevant rebates and subsidies. 
E)  All of the given answers.

Question 15

In addition to the cost-flow assumption, the system used to record movements in inventory also affects the determination of the cost of inventory. What are the systems commonly in use for recording the movement of inventory?

Accepted Answer

A)  Continuous and cyclic. 
B)  ABC costing and overhead allocation. 
C)  Positive and periodic. 
D)  Periodic and perpetual. 
E)  None of the given answers. 
A)  Continuous and cyclic. 
B)  ABC costing and overhead allocation. 
C)  Positive and periodic. 
D)  Periodic and perpetual. 
E)  None of the given answers.

Question 16

Consistent with positive accounting theory, an entity close to breaching their debt covenant will:

Accepted Answer

A)  prefer LIFO method over FIFO method. 
B)  prefer FIFO method over LIFO method. 
C)  prefer weighted average method over FIFO method. 
D)  prefer moving average method over FIFO method. 
E)  None of the given answers. 
A)  prefer LIFO method over FIFO method. 
B)  prefer FIFO method over LIFO method. 
C)  prefer weighted average method over FIFO method. 
D)  prefer moving average method over FIFO method. 
E)  None of the given answers.

Question 17

Circle Ltd manufactures polystyrene trays for a variety of purposes. The following information relates to the production of the medium trays used by meat packing companies for the period ended 30 June 2003.
 
The company uses a perpetual inventory system. The net realisable value per extra large cardboard box is $0.17 at the end of the period. What are the costs of sales and the value of ending inventory for Rectangle Ltd assuming the FIFO cost-flow assumption is used?

Accepted Answer

A)  Cost of sales: $633.80 Ending inventory: $83 
B)  Cost of sales: $654.55 Ending inventory: $62.25 
C)  Cost of sales: $657.19 Ending inventory: $59.61 
D)  Cost of sales: $633.80 Ending inventory: $70.55 
E)  None of the given answers. 
A)  Cost of sales: $633.80 Ending inventory: $83 
B)  Cost of sales: $654.55 Ending inventory: $62.25 
C)  Cost of sales: $657.19 Ending inventory: $59.61 
D)  Cost of sales: $633.80 Ending inventory: $70.55 
E)  None of the given answers.

Question 18

Big Games for Big Kids sell a variety of gaming consoles and games. It has presented you with the following information for the sales of a new product Angel's Hat 2 for the three months from November to January. They began November with 50 units on hand valued at $1,500. In the lead up to Christmas each unit sold for $90 but in the post Christmas sales in January this price was reduced to $50.
 
Big Games for Big Kids use the periodic system to record inventory. A physical stock take reveals 30 units on hand at the end of January. What is the cost of sales and value of ending inventory using the weighted average cost-flow assumption?

Accepted Answer

A)  Cost of sales: $14,190 Ending inventory: $1,290 
B)  Cost of sales: $14,060 Ending inventory: $1,420 
C)  Cost of sales: $14,190 Ending inventory: $ 900 
D)  Cost of sales: $24,850 Ending inventory: $1,420 
E)  Cannot be determined from the above information. 
A)  Cost of sales: $14,190 Ending inventory: $1,290 
B)  Cost of sales: $14,060 Ending inventory: $1,420 
C)  Cost of sales: $14,190 Ending inventory: $ 900 
D)  Cost of sales: $24,850 Ending inventory: $1,420 
E)  Cannot be determined from the above information.

Question 19

Oblong Ltd manufactures cardboard boxes for a variety of purposes. The following information relates to the production of the extra large packing boxes used by removalists for the period ended 30 June 2003.
 
The company uses a perpetual inventory system. The net realisable value per extra large cardboard box is $3.15 at the end of the period. What are the costs of sales and the value of ending inventory for Oblong Ltd assuming the FIFO cost-flow assumption is used?

Accepted Answer

A)  Cost of sales: $3,460.40 Ending inventory: $380.00 
B)  Cost of sales: $3,453.90 Ending inventory: $386.50 
C)  Cost of sales: $3,459.41 Ending inventory: $380.99 
D)  Cost of sales: $3,453.90 Ending inventory: $393.75 
E)  None of the given answers. 
A)  Cost of sales: $3,460.40 Ending inventory: $380.00 
B)  Cost of sales: $3,453.90 Ending inventory: $386.50 
C)  Cost of sales: $3,459.41 Ending inventory: $380.99 
D)  Cost of sales: $3,453.90 Ending inventory: $393.75 
E)  None of the given answers.

Question 20

FIFO method is an income decreasing inventory cost flow method in periods of rising prices.

Accepted Answer

A) True 
 B)False

Exam 7: Inventory

The definition of inventories includes assets in the form of materials or supplies to be consumed in the production process or in rendering of services:

Fixed production costs are those that, within normal operating limits:

In times of rising prices for inventory, which of the following is true?

According to AASB 102 material information relating to which of the following must be disclosed?

The cost of sub-contracted work is not included in costs of conversion for the purposes of calculating the cost of inventory:

The value of inventory reported in the financial statements under AASB 102 may be reported at an amount lower than its original cost:

The cost-flow assumption selected for inventory costing purposes should always reflect the physical flow of goods out of inventory:

According to AASB 102, one or more of which set of methods should be used to apply the costs of inventories to particular items of inventory?

Upward revaluation of inventory is permitted for as long as all assets in same inventory class are revalued.

Which of the following statements is correct in relation to the costing of inventories?

AASB 102 provides that inventories must be valued at the lower of cost and net realisable value for groups of homogeneous items where it is impracticable to measure them on an item-by-item basis:

The measurement of inventories is no different for not-for-profit entities.

The cost of inventory is defined by AASB 102 as including:

In addition to the cost-flow assumption, the system used to record movements in inventory also affects the determination of the cost of inventory. What are the systems commonly in use for recording the movement of inventory?

Consistent with positive accounting theory, an entity close to breaching their debt covenant will:

FIFO method is an income decreasing inventory cost flow method in periods of rising prices.

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financ

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluation and Impairment Testing of Non-Current Assets

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Lease

Set-Off and Extinguishment of Debt

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in E

Accounting for Share-Based Payments

Accounting for Income Taxes

Cash-Flow Statements

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After Balance Sheet Date

Segment Reporting

Related-Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transact

Further Consolidation Issues Ii: Accounting for Minority Interests

Further Consolidation Issues Iii: Accounting for Indirect Ownershi

Further Consolidation Issues Iv: Accounting for Changes in the Deg

Accounting for Equity Investments

Accounting for Equity Investments

Accounting for Foreign Currency Transactions

Translation of the Accounts of Foreign Operations

Accounting for Corporate Social Responsibility

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