The following information relates to the total production costs and estimates of realisable value for a line of water pistols produced by Splash Happy Co Ltd. \[\begin{array} { | l | r | r | r | r | } \hline { \text { Item } } & \begin{array} { c } \text { Production cost } \\ \$ 000 \end{array} & \begin{array} { c } \text { Sales proceeds } \\ \$ 000 \end{array} & \begin{array} { c } \text { Packaging costs } \\ \$ 000 \end{array} & \begin{array} { c } \text { Transport costs } \\ \$ 000 \end{array} \\ \hline \text { Big Bang } & 8 & 17 & 5 & 2 \\ \hline \text { Little } & 10 & 13 & 1 & 1 \\ \hline \text { Splash } & 19 & 25 & 4 & 3\\ \hline \end{array}\] Packaging and transport costs are necessarily incurred in order to be able to sell the inventory.What is the value of the inventory in accordance with IAS 2?

A) $37 000 B) $21 000 C) $39 000 D) $36 000 A) $37 000 B) $21 000 C) $39 000 D) $36 000

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 2012. \[\begin{array} { | l | l | l | } \hline \text { Date } & \text { Manufactured } & \text { Units sold } \\ \hline 1 \text { July (balance) } & 100 @ \$ 3.05 & \\ \hline 15 \text { July 2011 } & 300 @ \$ 3.00 & \\ \hline 19 \text { July 2011 } & & 250 \\ \hline 20 \text { August 2011 } & 200 @ \$ 2.50 & \\ \hline 21 \text { August 2011 } & & 190 \\ \hline 15 \text { October 2011 } & 170 @ \$ 3.12 & \\ \hline 30 \text { October 2011 } & & 200 \\ \hline 15 \text { December 2011 } & 320 @ \$ 3.40 & \\ \hline 15 \text { January 2012 } & & 175 \\ \hline 13 \text { March 2012 } & 90 @ \$ 2.90 & \\ \hline 30 \text { March 202 } & & 220 \\ \hline 15 \text { June 2012 } & 80 @ \$ 3.20 & \\ \hline 28 \text { June 2012 } & & 100 \\ \hline \end{array}\] 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 goods sold and the value of ending inventory for Rectangle Ltd assuming the LIFO cost-flow assumption is used?

A) cost of sales: $3460.40; ending inventory: $380.00 B) cost of sales: $3453.90; ending inventory: $393.75 C) cost of sales: $3459.41; ending inventory: $380.99 D) cost of sales: $3453.90; ending inventory: $386.50 A) cost of sales: $3460.40; ending inventory: $380.00 B) cost of sales: $3453.90; ending inventory: $393.75 C) cost of sales: $3459.41; ending inventory: $380.99 D) cost of sales: $3453.90; ending inventory: $386.50

Video Productions Ltd commenced business manufacturing video tapes on 1 July 2013.Summary data for the first full year of production are: $\begin{array}{|l|l|} \hline \text { Opening finished goods in units } & \text { Nil } \\ \hline \text { Closing finished goods in units } & 10000 \\ \hline \text { Opening value of raw materials } & \$0\\ \hline \text { Closing value of raw materials inventory } & \$ 20000 \\ \hline \text { Purchases of raw materials } & \$ 100000 \\ \hline \text { Salaries: } &\\ \hline \text { Factory } & \$ 90000 \\ \hline \text { Marketing } & \$ 60000 \\ \hline \text { Factory rent } & \$ 120000 \\ \hline \text { Factory equipment depreciation } & \$ 85000 \\ \hline \text { Directors' salaries } & \$ 75000 \\ \hline \text { Sales price per unit } & \$ 6 \text { per unit } \\ \hline \text { Packaging and delivery costs of finished goods } & \$ 1 \text { per unit } \\ \hline \text { Normal operating capacity (units) } & 62500 \\ \hline \text { Production this period (units) } & 62500\\ \hline \end{array}$ 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?

A) $66 400 B) $72 000 C) $46 400 D) $50 000 A) $66 400 B) $72 000 C) $46 400 D) $50 000

Exam 7: Inventory

The following information relates to the total production costs and estimates of realisable value for a line of water pistols produced by Splash Happy Co Ltd. Item Production cost \ 000 Sales proceeds \ 000 Packaging costs \ 000 Transport costs \ 000 Big Bang 8 17 5 2 Little 10 13 1 1 Splash 19 25 4 3 Packaging and transport costs are necessarily incurred in order to be able to sell the inventory.What is the value of the inventory in accordance with IAS 2?

(Multiple Choice)

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Question 41

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

(Multiple Choice)

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Question 42

The only difference between IAS 2 and company law is that the 'international' standards allow inventory to be valued using LIFO.

(True/False)

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Question 43

The value of inventory reported in the financial statements under IAS 2 may be reported at an amount lower than its original cost.

(True/False)

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Question 44

IAS 2 requires that inventory is valued at:

(Multiple Choice)

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Question 45

Generally,IAS 2 requires inventories to be measured at cost or net realisable value.Discuss circumstances when other measurement bases (such as current replacement cost)are permitted.

(Essay)

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Question 46

Las Vegas Plc 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:

(Multiple Choice)

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Question 47

David Gordon is an accountant for Bronte Plc.At the end of the year he realised that ending inventory was overstated but the purchases account was recorded correctly.What is the effect of correcting the above error in the statement of comprehensive income and statement of financial position (inventory)accounts of Bronte Plc?

(Multiple Choice)

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Question 48

Reversal of a previous inventory write down is not advocated in IAS 2.

(True/False)

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Question 49

Phoenix Plc sells hard disks of similar make and model and reports an opening inventory on 1 July 2014 of 20 units purchased at £60.Its purchases during are as follows: September 90 units @ £70 November 110 units @ £75 March 70 units @ £80 Phoenix Plc sold 260 units during the year. What is the cost of ending inventory using FIFO and weighted average method respectively (rounded to the nearest dollar)?

(Multiple Choice)

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Question 50

IAS 2 require that inventories be reinstated to the extent that the new carrying amount does not:

(Multiple Choice)

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Question 51

Wiggins Plc is a small sport shop.At the beginning of the period,Wiggins Plc 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?

(Multiple Choice)

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Question 52

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 2012. Date Manufactured Units sold 1 July (balance) 100@\ 3.05 15 July 2011 300@\ 3.00 19 July 2011 250 20 August 2011 200@\ 2.50 21 August 2011 190 15 October 2011 170@\ 3.12 30 October 2011 200 15 December 2011 320@\ 3.40 15 January 2012 175 13 March 2012 90@\ 2.90 30 March 202 220 15 June 2012 80@\ 3.20 28 June 2012 100 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?

(Multiple Choice)

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Question 53

Discuss when a standard cost may be used to arrive at the cost of inventory.

(Essay)

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Question 54

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

(True/False)

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Question 55

Video Productions Ltd commenced business manufacturing video tapes on 1 July 2013.Summary data for the first full year of production are: Opening finished goods in units Nil Closing finished goods in units 10000 Opening value of raw materials \0 Closing value of raw materials inventory \ 20000 Purchases of raw materials \ 100000 Salaries: Factory \ 90000 Marketing \ 60000 Factory rent \ 120000 Factory equipment depreciation \ 85000 Directors' salaries \ 75000 Sales price per unit \ 6 per unit Packaging and delivery costs of finished goods \ 1 per unit Normal operating capacity (units) 62500 Production this period (units) 62500 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?

(Multiple Choice)

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Question 56

What are production overheads? Explain the criteria to be used when selecting a method to allocate production overheads.

(Essay)

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Question 57

Identify and discuss the items included as inventory cost.

(Essay)

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Question 58

Paris Merchandising Plc sells ladies skirts.The opening inventory 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?

(Multiple Choice)

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Question 59

Explain the circumstances where borrowing costs are permitted to be included in the cost of inventories?

(Essay)

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Question 60

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

The only difference between IAS 2 and company law is that the 'international' standards allow inventory to be valued using LIFO.

The value of inventory reported in the financial statements under IAS 2 may be reported at an amount lower than its original cost.

IAS 2 requires that inventory is valued at:

Generally,IAS 2 requires inventories to be measured at cost or net realisable value.Discuss circumstances when other measurement bases (such as current replacement cost)are permitted.

Las Vegas Plc 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:

Reversal of a previous inventory write down is not advocated in IAS 2.

IAS 2 require that inventories be reinstated to the extent that the new carrying amount does not:

Discuss when a standard cost may be used to arrive at the cost of inventory.

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

What are production overheads? Explain the criteria to be used when selecting a method to allocate production overheads.

Identify and discuss the items included as inventory cost.

Explain the circumstances where borrowing costs are permitted to be included in the cost of inventories?

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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