Question 1

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. 
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. B

Question 2

According to IAS 2,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 
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 C

Question 3

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  False

Question 4

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 
A) direct costing 
B) absorption costing 
C) LIFO assuming prices are falling 
D) FIFO assuming prices are rising

Question 5

What are the benefits of using LIFO method in jurisdictions where this inventory cost-flow assumption is permitted?

Accepted Answer

LIFO may be used in the US for external

Question 6

IAS 2 requires that fixed manufacturing costs be excluded from the cost of inventories,as they cannot be allocated accurately.

Accepted Answer

A) True 
 B)False

Question 7

Randwick Plc has a year-end of 30 June 2011.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 statement of comprehensive income and statement of financial position (inventory)accounts of Randwick Plc?

Accepted Answer

A)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Increase } & \text { Increase } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Decrease } & \text { Increase } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Decrease } & \text { Decrease } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Increase } & \text { Decrease } \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Increase } & \text { Increase } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Decrease } & \text { Increase } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Decrease } & \text { Decrease } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Statement of } \
\text { comprehensive income }
\end{array} & \begin{array} { c } 
\text { Statement of financial } \
\text { position (inventory) }
\end{array} \
\hline \text { Increase } & \text { Decrease } \
\hline
\end{array}$$

Question 8

When reversing a previous period inventory write down,this would result in a debit entry to the inventory account.

Accepted Answer

A) True 
 B)False

Question 9

IAS 2 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) any 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) any of the given answers.

Question 10

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 2012. $$\begin{array} { | l | l | l | } 
\hline \text { Date } & \text { Manufactured } & \text { Units sold } \
\hline 1 \text { July (balance) } & 100 @ \$ 3.05 & \
\hline 15 \text { July 2011 } & 300 @ \$ 3.00 & \
\hline 19 \text { July 2011 } & & 250 \
\hline 20 \text { August 2011 } & 200 @ \$ 2.50 & \
\hline 21 \text { August 2011 } & & 190 \
\hline 15 \text { October 2011 } & 170 @ \$ 3.12 & \
\hline 30 \text { October 2011 } & & 200 \
\hline 15 \text { December 2011 } & 320 @ \$ 3.40 & \
\hline 15 \text { January 2012 } & & 175 \
\hline 13 \text { March 2012 } & 90 @ \$ 2.90 & \
\hline 30 \text { March 2012 } & & 220 \
\hline 15 \text { June 2012 } & 80 @ \$ 3.20 & \
\hline 28 \text { June 2012 } & & 100 \
\hline
\end{array}$$ 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: $3460.40; ending inventory: $380.00 
B) cost of sales: $3453.90; ending inventory: $386.50 
C) cost of sales: $3459.41; ending inventory: $380.99 
D) cost of sales: $3453.90 ending inventory: $393.75 
A) cost of sales: $3460.40; ending inventory: $380.00 
B) cost of sales: $3453.90; ending inventory: $386.50 
C) cost of sales: $3459.41; ending inventory: $380.99 
D) cost of sales: $3453.90 ending inventory: $393.75

Question 11

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. 
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.

Question 12

Balmoral Ltd commenced business on 1 July 2013.The company manufactures bookcases.Summary data for Balmoral's first full year of operations are: $\begin{array}{|l|l|}
\hline \text { Closing finished goods in units } & 900 \
\hline \text { Closing value of raw materials inventory } & \$ 50000 \
\hline \text { Purchases of raw materials } & \$ 450000 \
\hline \text { Salaries: } &\
\hline  \text { Factory } & \$ 150000 \
\hline  \text { Marketing } & \$ 90000 \
\hline  \text { Administration } & \$ 70000\
\hline \text { Factory depreciation } & \$ 60000 \
\hline \text { Factory equipment depreciation } & \$ 45000 \
\hline \text { Advertising } & \$ 80000 \
\hline \text { Interest } & \$ 39000 \
\hline
\text { Sales price per unit } & \$ 79 \text { per unit } \
\hline \text { Packaging and delivery costs of finished goods } & \$ 9 \text { per unit } \
\hline \text { Normal operating capacity (units) } & 10000 \
\hline \text { Production this period (units) } & 10000\
\hline
\end{array}$ 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 IAS 2?

Accepted Answer

A) $58 950 
B) $63 000 
C) $49 500 
D) $69 660 
A) $58 950 
B) $63 000 
C) $49 500 
D) $69 660

Question 13

Toey Ltd has provided the following information about the total production cost and estimates of realisable value of three lines of shoes they produce within the same class of inventory $\begin{array}{|c|c|r|c|c|}
\hline \text { Item } & \begin{array}{c}
\text { Production cost } \
\$ 000
\end{array} & \begin{array}{c}
\text { Sales proceeds } \
\$ 000
\end{array} & \begin{array}{c}
\text { Packaging costs } \
\$ 000
\end{array} & \begin{array}{c}
\text { Freight outwards } \
\$ 000
\end{array} \
\hline \text { Sling back } & 13 & 15 & 3 & 2\\hline \text { Court } & 10 & 16 & 3 & 1 \
\hline \text { Stiletto } & 17 & 19 & 4 & 3 \
\hline
\end{array}$ Packaging and freight are necessary in order to be able to sell the shoes.What is the value of the inventory in accordance with IAS 2?

Accepted Answer

A) $34 000 
B) $40 000 
C) $32 000 
D) $24 000 
A) $34 000 
B) $40 000 
C) $32 000 
D) $24 000

Question 14

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. 
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.

Question 15

Some biological assets may be covered by IAS 2 Inventories.

Accepted Answer

A) True 
 B)False

Question 16

The inventory record of Palm Springs Plc shows 1000 surf boards on stock that cost €50 each.During the last stocktake,the accountant noted 100 old style surf boards with net realisable amount of €15.What journal entry would be required of Palm Springs to comply with IAS 2?

Accepted Answer

A)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Ending inventory } & 1500 & \
\hline \mathrm { Cr } & \text { Cost of sales } & & 1500 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Ending inventory } & 1500 & \
\hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 1500 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Impairment loss } & 1500 & \
\hline \mathrm { Cr } & \text { Ending inventory } & & 1500 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Impairment loss } & 1500 & \
\hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 1500 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Ending inventory } & 1500 & \
\hline \mathrm { Cr } & \text { Cost of sales } & & 1500 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Ending inventory } & 1500 & \
\hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 1500 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Impairment loss } & 1500 & \
\hline \mathrm { Cr } & \text { Ending inventory } & & 1500 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | l | l | l | } 
\hline \mathrm { Dr } & \text { Impairment loss } & 1500 & \
\hline \mathrm { Cr } & \text { Asset revaluation reserve } & & 1500 \
\hline
\end{array}$$

Question 17

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 IAS 2. 
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 IAS 2. 
C) Absorption costing treats fixed production costs as an expense of the period and is the required method for valuing inventories under IAS 2. 
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 IAS 2. 
A) Direct costing treats fixed production costs as an expense of the period and is not permitted as a method for valuing inventories under IAS 2. 
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 IAS 2. 
C) Absorption costing treats fixed production costs as an expense of the period and is the required method for valuing inventories under IAS 2. 
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 IAS 2.

Question 18

The cost of inventory is defined by IAS 2 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) 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) all of the given answers.

Question 19

Perpetual inventory system is also known as the physical inventory method.

Accepted Answer

A) True 
 B)False

Question 20

Big Games for Big Kids sell a variety of gaming consoles and games.The company 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 in November with 50 units on hand valued at $1500.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. \(\begin{array}{|l|l|l|}
\hline \text { Opening inventory-1 November } 2011 & 50 \text { units } & 1500 \
\hline\
\hline \text { Sales on } 9 \text { November } 2011 & 45 \text { units @ } \$ 90 & 4050 \
\hline \text { Purchases on } 10 \text { November } 2011 & 70 \text { units @ } \$ 40 & 2800 \
\hline \text { Sales on 12 November } 2011 & 60 \text { units @ } \$ 90 & 5400 \
\hline \text { Purchases on 24 November } 2011 & 50 \text { units @ } \$ 40 & 2000\
\hline \text { Sales on } 1 \text { December } 2011 & 50 \text { units @ } \$ 90 & 4500 \
\hline \text { Purchases on 1 December 2011 } & 80 \text { units @ } \$ 47 & 3760 \
\hline \text { Sales on 24 December } 2011 & 60 \text { units @ } \$ 90 & 5400\
\hline \text { Purchases on 29 December 2011 } & 100 \text { units @ } \$ 50 & 5000 \
\hline \text { Sales on 3 January 2012 } & 90 \text { units @ } \$ 50 & 4500 \
\hline \text { Purchases on 10 January 2012 } & 10 \text { units @ } \$ 42 & 420 \
\hline \text { Sales on 15 January } 2012 & 20 \text { units @ } \$ 50 & 1000\
\hline

\end{array}\)
 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 FIFO cost-flow assumption?

Accepted Answer

A) cost of sales: $14 190; ending inventory: $1290 
B) cost of sales: $14 060; ending inventory: $1420 
C) cost of sales: $14 060; ending inventory: $1260 
D) cost of sales: $24 850; ending inventory: $1420 
A) cost of sales: $14 190; ending inventory: $1290 
B) cost of sales: $14 060; ending inventory: $1420 
C) cost of sales: $14 060; ending inventory: $1260 
D) cost of sales: $24 850; ending inventory: $1420

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

According to IAS 2,one or more of which set of methods should be used to apply the costs of inventories to particular items of inventory?

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.

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

What are the benefits of using LIFO method in jurisdictions where this inventory cost-flow assumption is permitted?

IAS 2 requires that fixed manufacturing costs be excluded from the cost of inventories,as they cannot be allocated accurately.

When reversing a previous period inventory write down,this would result in a debit entry to the inventory account.

IAS 2 on inventories does not apply to:

Using the periodic system of inventory:

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

Some biological assets may be covered by IAS 2 Inventories.

The inventory record of Palm Springs Plc shows 1000 surf boards on stock that cost €50 each.During the last stocktake,the accountant noted 100 old style surf boards with net realisable amount of €15.What journal entry would be required of Palm Springs to comply with IAS 2?

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

The cost of inventory is defined by IAS 2 as including:

Perpetual inventory system is also known as the physical inventory method.

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

Filters

Exam 7: Inventory

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

According to IAS 2,one or more of which set of methods should be used to apply the costs of inventories to particular items of inventory?

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.

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

What are the benefits of using LIFO method in jurisdictions where this inventory cost-flow assumption is permitted?

IAS 2 requires that fixed manufacturing costs be excluded from the cost of inventories,as they cannot be allocated accurately.

When reversing a previous period inventory write down,this would result in a debit entry to the inventory account.

IAS 2 on inventories does not apply to:

Using the periodic system of inventory:

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

Some biological assets may be covered by IAS 2 Inventories.

The inventory record of Palm Springs Plc shows 1000 surf boards on stock that cost €50 each.During the last stocktake,the accountant noted 100 old style surf boards with net realisable amount of €15.What journal entry would be required of Palm Springs to comply with IAS 2?

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

The cost of inventory is defined by IAS 2 as including:

Perpetual inventory system is also known as the physical inventory method.

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

Filters