Question 1

Discuss why LIFO cost-flow method is not permitted under IAS 2 when it is supported in the US in periods of rising prices.

Accepted Answer

The last-in,first-out (LIFO)cost-flow me

Question 2

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. 
A) variable costing and incremental costing. 
B) absorption costing and direct costing. 
C) overhead costing and ABC costing. 
D) relevant costing and incremental costing.

Question 3

Under the perpetual system,a difference with the stocktake records might indicate:

Accepted Answer

A) damaged inventory. 
B) theft of inventory. 
C) obsolete inventory. 
D) all of the given answers. 
A) damaged inventory. 
B) theft of inventory. 
C) obsolete inventory. 
D) all of the given answers.

Question 4

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 
A) continuous and cyclic 
B) ABC costing and overhead allocation 
C) positive and periodic 
D) periodic and perpetual

Question 5

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 6

A company engaged in buying and selling equity securities should consider this asset as inventory and should be accounted for in accordance with IAS 2.

Accepted Answer

A) True 
 B)False

Question 7

What is the implication on valuation of work-in-progress inventories when the net realisable value is lower than the carrying amount of the asset?

Accepted Answer

Lower of cost and net realisable value c

Question 8

Kensington Plc,an Irish Company,is an importer and retailer of Danish made glass crystals.For the year ended 30 June 2012,Kensington Ltd plc holds 30 units of an item originally purchased for €10 000 each and a net realisable value of €8000.On 1 June 2013 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 2013.What is the effect of holding this inventory on the statement of comprehensive income of Kensington Plc for the years ended 30 June 2012 and 2013?

Accepted Answer

A) No effect on both years because the inventory items are still unsold. 
B) Decrease profit by €60 000 in 2012; increase profit by €210 000 in 2013. 
C) Decrease profit by €60 000 in 2012; no effect in 2013. 
D) Decrease profit by €60 000 in 2012; increase profit by €60 000 in 2013. 
A) No effect on both years because the inventory items are still unsold. 
B) Decrease profit by €60 000 in 2012; increase profit by €210 000 in 2013. 
C) Decrease profit by €60 000 in 2012; no effect in 2013. 
D) Decrease profit by €60 000 in 2012; increase profit by €60 000 in 2013.

Question 9

The periodic inventory system operates by:

Accepted Answer

A) keeping track of inventory as it comes into the organisation and as it leaves. 
B) counting inventory at regular intervals to establish how much of each item is on hand. 
C) assuming that the inventory that came in first is the first to be sold. 
D) tracking the cost of specific items of inventory to the products sold by grouping items according to cost drivers. 
A) keeping track of inventory as it comes into the organisation and as it leaves. 
B) counting inventory at regular intervals to establish how much of each item is on hand. 
C) assuming that the inventory that came in first is the first to be sold. 
D) tracking the cost of specific items of inventory to the products sold by grouping items according to cost drivers.

Question 10

IAS 2 Inventories applies to biological assets related to agricultural activity.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Under IAS 2 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. 
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.

Question 13

Discuss the relative merits of using FIFO and LIFO as basis of cost of inventories during periods of rising prices.

Accepted Answer

In a period of rising prices,LIFO adopte

Question 14

According to IAS 2 inventories include assets:

Accepted Answer

A) such as service contracts arising under construction contracts. 
B) held over the long term for use in the production process. 
C) such as financial instruments. 
D) held in the process of production, preparation or conversion for sale. 
A) such as service contracts arising under construction contracts. 
B) held over the long term for use in the production process. 
C) such as financial instruments. 
D) held in the process of production, preparation or conversion for sale.

Question 15

IAS 2 requires,among others,disclosure of which of the following pieces of information?

Accepted Answer

A) accounting policy adopted for measuring inventories 
B) carrying amount of inventories for each classification of inventory appropriate to the entity 
C) amount of any write-down during the period 
D) all of the given answers 
A) accounting policy adopted for measuring inventories 
B) carrying amount of inventories for each classification of inventory appropriate to the entity 
C) amount of any write-down during the period 
D) all of the given answers

Question 16

Which of the following is not a definition in IAS 2 on inventories?

Accepted Answer

A) Assets in the form of materials or supplies to be consumed in the production process. 
B) Assets in the process of production for sale. 
C) Raw materials to be used in maintaining machines that prepare goods for sale. 
D) Assets held for sale in the ordinary course of business. 
A) Assets in the form of materials or supplies to be consumed in the production process. 
B) Assets in the process of production for sale. 
C) Raw materials to be used in maintaining machines that prepare goods for sale. 
D) Assets held for sale in the ordinary course of business.

Question 17

According to IAS 2 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 
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

Question 18

Weighted-average cost will generate results that are:

Accepted Answer

A) higher value that LIFO. 
B) higher value than FIFO. 
C) in between LIFO and FIFO. 
D) higher value that LIFO and FIFO. 
A) higher value that LIFO. 
B) higher value than FIFO. 
C) in between LIFO and FIFO. 
D) higher value that LIFO and FIFO.

Question 19

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 20

When calculating cost of inventory IAS 2 requires which of the following costs are to be excluded?

Accepted Answer

A) abnormal amounts of wasted materials 
B) selling costs 
C) administrative overheads 
D) All of the given answers should be excluded. 
A) abnormal amounts of wasted materials 
B) selling costs 
C) administrative overheads 
D) All of the given answers should be excluded.

Exam 7: Inventory

Discuss why LIFO cost-flow method is not permitted under IAS 2 when it is supported in the US in periods of rising prices.

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

Under the perpetual system,a difference with the stocktake records might indicate:

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?

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.

A company engaged in buying and selling equity securities should consider this asset as inventory and should be accounted for in accordance with IAS 2.

What is the implication on valuation of work-in-progress inventories when the net realisable value is lower than the carrying amount of the asset?

The periodic inventory system operates by:

IAS 2 Inventories applies to biological assets related to agricultural activity.

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

Under IAS 2 revaluations are permitted:

Discuss the relative merits of using FIFO and LIFO as basis of cost of inventories during periods of rising prices.

According to IAS 2 inventories include assets:

IAS 2 requires,among others,disclosure of which of the following pieces of information?

Which of the following is not a definition in IAS 2 on inventories?

According to IAS 2 material information relating to which of the following must be disclosed?

Weighted-average cost will generate results that are:

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

When calculating cost of inventory IAS 2 requires which of the following costs are to be excluded?

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

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