Question 1

Using the periodic system of inventory:

Accepted Answer

A)  Gives the same results as a perpetual system when FIFO is applied but without some of the extra detail. 
B)  Is much more cost effective as a perpetual system requires a computer. 
C)  Does not require a stock take each year and is therefore more accurate. 
D)  Accurately reports all stock movements which assists with decision-making. 
E)  All of the given answers. 
A)  Gives the same results as a perpetual system when FIFO is applied but without some of the extra detail. 
B)  Is much more cost effective as a perpetual system requires a computer. 
C)  Does not require a stock take each year and is therefore more accurate. 
D)  Accurately reports all stock movements which assists with decision-making. 
E)  All of the given answers.

Question 2

Which accounting policy for manufacturing fixed costs is likely to favour managers whose firms are subject to political scrutiny?

Accepted Answer

A)  Direct costing; 
B)  Absorption costing; 
C)  LIFO assuming prices are falling; 
D)  FIFO assuming prices are rising; 
E)  E: None of the given answers. 
A)  Direct costing; 
B)  Absorption costing; 
C)  LIFO assuming prices are falling; 
D)  FIFO assuming prices are rising; 
E)  E: None of the given answers.

Question 3

Standard costs are able to be used under AASB 102 where:

Accepted Answer

A)  They have been properly set and maintained. 
B)  They are realistically attainable and are reviewed regularly. 
C)  They are assessed to be a sound basis for the purpose of inventory valuation. 
D)  They are revised in the light of current conditions as necessary. 
E)  None of the given answers. 
A)  They have been properly set and maintained. 
B)  They are realistically attainable and are reviewed regularly. 
C)  They are assessed to be a sound basis for the purpose of inventory valuation. 
D)  They are revised in the light of current conditions as necessary. 
E)  None of the given answers.

Question 4

Kensington Ltd is an importer and retailer of European made glass crystals. For the year ended 30 June 2008, Kensington Ltd still holds 30 units of an item originally purchased for $10,000 each and a net realisable value of $8,000. On 1 June 2009 the TV show "Home Improvement" featured a similar item prompting an increase in demand for this glass crystal. Management believes that the net realisable value of this item is now $15,000. All 30 items remain unsold on 30 June 2009. What is the effect of holding this inventory on the income statement of Heffron Ltd for the years ended 30 June 2008 and 2009?

Accepted Answer

A)  No effect on both years because the inventory items are still unsold. 
B)  Decrease profit by $60,000 in 2008; increase profit by $210,000 in 2009. 
C)  Decrease profit by $60,000 in 2008; no effect in 2009. 
D)  Decrease profit by $60,000 in 2008; increase profit by $60,000 in 2009. 
E)  None of the given answers. 
A)  No effect on both years because the inventory items are still unsold. 
B)  Decrease profit by $60,000 in 2008; increase profit by $210,000 in 2009. 
C)  Decrease profit by $60,000 in 2008; no effect in 2009. 
D)  Decrease profit by $60,000 in 2008; increase profit by $60,000 in 2009. 
E)  None of the given answers.

Question 5

AASB 102 provides that not-for-profit entities:

Accepted Answer

A)  Must value their assets at the lower of cost or net realisable value to allow reports to be compared. 
B)  Should only report inventories at cost for simplicity. 
C)  Should value their assets at either cost or current replacement cost, whichever is more beneficial. 
D)  Will record the inventories at the lower of cost or current replacement cost. 
E)  None of the given answers. 
A)  Must value their assets at the lower of cost or net realisable value to allow reports to be compared. 
B)  Should only report inventories at cost for simplicity. 
C)  Should value their assets at either cost or current replacement cost, whichever is more beneficial. 
D)  Will record the inventories at the lower of cost or current replacement cost. 
E)  None of the given answers.

Question 6

The valuation of inventories may be on the basis of:

Accepted Answer

A)  The lower of direct cost and recoverable amount. 
B)  Regular revaluations by classes of inventories undertaken at the end of the period. 
C)  The weighted average of market value and absorption cost over the period. 
D)  The lower of cost and net realisable value. 
E)  All of the given answers. 
A)  The lower of direct cost and recoverable amount. 
B)  Regular revaluations by classes of inventories undertaken at the end of the period. 
C)  The weighted average of market value and absorption cost over the period. 
D)  The lower of cost and net realisable value. 
E)  All of the given answers.

Question 7

Bondi Ltd is a small sports shop. At the beginning of the period, Bondi Ltd had 30 tennis racquets on hand costing $50 each. On 31 October 2009, the shop sold 20 racquets to a tennis instructor for $80. A delivery of 50 racquets was received on 15 November 2009 at $50 but received 2% discount if the account is paid within 30 days. What are the appropriate journal entries to recognise above transactions using the periodic system?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 8

Standard costs may be used to arrive at the cost of inventory only where standards are set at ideal levels and any costs arising from exceptional wastage are excluded from the cost of inventories:

Accepted Answer

A) True 
 B)False

Question 9

Some biological assets may be covered by AASB 102 "Inventories":

Accepted Answer

A) True 
 B)False

Question 10

Randwick Ltd has a year-end of 30 June 2009. During the year the following errors were discovereD.
-Merchandise inventory at the factory had been understated by $44,000.
-Goods on consignment from a supplier for $13,000 were included in inventory at the shops.
-Physical inventory for one warehouse had a shortage of $58,000
What is the net effect of above errors in the income statement and balance sheet (inventory) accounts of Randwick Ltd?

Accepted Answer

The answer of Randwick Ltd has a year-end of 30...

Question 11

Use of the LIFO method has been deemed unacceptable under AASB 102 because?

Accepted Answer

A)  It presents too many options to report preparers and may confuse them. 
B)  This method allows profits to be manipulated by purchasing items at year's end even though they have not been sold. 
C)  It can result in higher cost of goods sold figures and therefore lower taxes. 
D)  This method did reflect the actual physical flow of inventories. 
E)  All of the given answers. 
A)  It presents too many options to report preparers and may confuse them. 
B)  This method allows profits to be manipulated by purchasing items at year's end even though they have not been sold. 
C)  It can result in higher cost of goods sold figures and therefore lower taxes. 
D)  This method did reflect the actual physical flow of inventories. 
E)  All of the given answers.

Question 12

AASB 102 on inventories does not apply to:

Accepted Answer

A)  Trees held for sale as part of forestry operations. 
B)  Work-in-progress under construction contracts. 
C)  Agricultural produce of a biological asset. 
D)  All of the given answers. 
E)  None of the given answers. 
A)  Trees held for sale as part of forestry operations. 
B)  Work-in-progress under construction contracts. 
C)  Agricultural produce of a biological asset. 
D)  All of the given answers. 
E)  None of the given answers.

Question 13

Under AASB 102 revaluations are permitteD.

Accepted Answer

A)  Only in the form of a write-down. 
B)  Only when an independent valuation is made by an external party. 
C)  Only if upward revaluations are credited to an Inventory Revaluation Reserve. 
D)  Only if the replacement cost of the asset is higher than the historical cost. 
E)  None of the given answers. 
A)  Only in the form of a write-down. 
B)  Only when an independent valuation is made by an external party. 
C)  Only if upward revaluations are credited to an Inventory Revaluation Reserve. 
D)  Only if the replacement cost of the asset is higher than the historical cost. 
E)  None of the given answers.

Question 14

The two main methods for dealing with fixed costs in relation to the production of inventory are:

Accepted Answer

A)  Variable costing and incremental costing. 
B)  Absorption costing and direct costing. 
C)  Overhead costing and ABC costing. 
D)  Relevant costing and incremental costing. 
E)  None of the given answers. 
A)  Variable costing and incremental costing. 
B)  Absorption costing and direct costing. 
C)  Overhead costing and ABC costing. 
D)  Relevant costing and incremental costing. 
E)  None of the given answers.

Question 15

Rectangle 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 goods sold and the value of ending inventory for Rectangle Ltd assuming the LIFO 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: $393.75 
C)  Cost of sales: $3,459.41 Ending inventory: $380.99 
D)  Cost of sales: $3,453.90 Ending inventory: $386.50 
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: $393.75 
C)  Cost of sales: $3,459.41 Ending inventory: $380.99 
D)  Cost of sales: $3,453.90 Ending inventory: $386.50 
E)  None of the given answers.

Question 16

Las Vegas Ltd sells second hand luxury cars of various makes and models, and uses the FIFO cost flow assumption to ascertain the cost of ending inventory. This would be incorrect because:

Accepted Answer

A)  this is not the practice used by other car dealerships. 
B)  this method will overstate profit. 
C)  this method will not capture unique characteristics of items held in inventory. 
D)  this method requires detailed bookkeeping. 
E)  E: None of the given answers. 
A)  this is not the practice used by other car dealerships. 
B)  this method will overstate profit. 
C)  this method will not capture unique characteristics of items held in inventory. 
D)  this method requires detailed bookkeeping. 
E)  E: None of the given answers.

Question 17

The first-in, first-out (FIFO) method assumes that items remaining in inventory at the end of the period are those most recently purchased or produced.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is correct with respect to positive accounting theory?

Accepted Answer

A)  Managers of firms with bonus based contracts prefer LIFO method of valuation basis, if permitted. 
B)  Managers of firms with bonus based contracts prefer FIFO method of valuation basis. 
C)  Managers prefer the FIFO method of valuation basis. 
D)  Managers with debt covenants prefer LIFO method, if permitted. 
E)  E: None of the given answers. 
A)  Managers of firms with bonus based contracts prefer LIFO method of valuation basis, if permitted. 
B)  Managers of firms with bonus based contracts prefer FIFO method of valuation basis. 
C)  Managers prefer the FIFO method of valuation basis. 
D)  Managers with debt covenants prefer LIFO method, if permitted. 
E)  E: None of the given answers.

Question 19

Paris Merchandising Ltd sells ladies skirts. The opening stock consisted of 300 skirts with purchase price of $50 each. Subsequent purchases during the period include: 400 at $60 each and another 200 for $70 each. A total of 700 skirts were sold during the period. What is ending inventory using FIFO method?

Accepted Answer

A)  $10,000 
B)  $11,800 
C)  $12,000 
D)  $14,000 
E)  E: None of the given answers. 
A)  $10,000 
B)  $11,800 
C)  $12,000 
D)  $14,000 
E)  E: None of the given answers.

Question 20

AASB 102 requires that the specific identification method of assigning cost to items of inventory be applieD.

Accepted Answer

A)  Wherever possible in order to achieve the most accurate cost figure. 
B)  To items of inventory that are ordinarily interchangeable or identical and have significant individual dollar value. 
C)  Wherever items are separately identifiable and of significant individual dollar value. 
D)  To items of inventory that are not ordinarily interchangeable or are produced and segregated for specific projects. 
E)  None of the given answers. 
A)  Wherever possible in order to achieve the most accurate cost figure. 
B)  To items of inventory that are ordinarily interchangeable or identical and have significant individual dollar value. 
C)  Wherever items are separately identifiable and of significant individual dollar value. 
D)  To items of inventory that are not ordinarily interchangeable or are produced and segregated for specific projects. 
E)  None of the given answers.

Exam 7: Inventory

Using the periodic system of inventory:

Which accounting policy for manufacturing fixed costs is likely to favour managers whose firms are subject to political scrutiny?

Standard costs are able to be used under AASB 102 where:

AASB 102 provides that not-for-profit entities:

The valuation of inventories may be on the basis of:

Standard costs may be used to arrive at the cost of inventory only where standards are set at ideal levels and any costs arising from exceptional wastage are excluded from the cost of inventories:

Some biological assets may be covered by AASB 102 "Inventories":

Use of the LIFO method has been deemed unacceptable under AASB 102 because?

AASB 102 on inventories does not apply to:

Under AASB 102 revaluations are permitteD.

The two main methods for dealing with fixed costs in relation to the production of inventory are:

Las Vegas Ltd sells second hand luxury cars of various makes and models, and uses the FIFO cost flow assumption to ascertain the cost of ending inventory. This would be incorrect because:

The first-in, first-out (FIFO) method assumes that items remaining in inventory at the end of the period are those most recently purchased or produced.

Which of the following statements is correct with respect to positive accounting theory?

AASB 102 requires that the specific identification method of assigning cost to items of inventory be applieD.

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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