Question 1

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. 
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.

Question 2

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 3

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. 
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.

Question 4

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 5

In periods where production costs or purchase prices of inventory items do not change,it does not matter which inventory method is adopted as this would generate the same value for cost of goods sold and ending inventory.

Accepted Answer

A) True 
 B)False

Question 6

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 AASB 102?

Accepted Answer

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

Question 7

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

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

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. 
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.

Question 10

A company engaged in buying and selling equity securities should consider this asset as inventory and should be accounted for in accordance with AASB 102.

Accepted Answer

A) True 
 B)False

Question 11

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. 
$$\begin{array} { | l | l | r | } 
\hline \text { Date } & \text { Manufactured } & \text { Units sold } \
\hline 1 \text { July (balance) } & 100 @ \$ 3.05 & \
\hline 15 \text { July 2011 } & 300 @ \$ 3.00 & \
\hline 19 \text { July 2011 } & & 250 \
\hline 20 \text { August 2011 } & 200 @ \$ 2.50 & \
\hline 21 \text { August 2011 } & & 190 \
\hline 15 \text { October } 2011 & 170 @ \$ 3.12 & \
\hline 30 \text { October 2011 } & & 200 \
\hline 15 \text { December 2011 } & 320 @ \$ 3.40 & \
\hline 15 \text { January 2012 } & & 175 \
\hline 13 \text { March 2012 } & 90 @ \$ 2.90 & \
\hline 30 \text { March 202 } & & 220 \
\hline 15 \text { June 2012 } & 80 @ \$ 3.20 & \
\hline 28 \text { June 2012 } & & 100 \
\hline
\end{array}$$
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?

Accepted Answer

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

Question 12

The inventory record of Palm Springs Ltd 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 AASB 102?

Accepted Answer

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

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

AASB 102 require that inventories be reinstated to the extent that the new carrying amount does not:

Accepted Answer

A)  exceed the net realisable value in the previous period. 
B)  exceed the lower of the original cost. 
C)  exceed the net realisable value in the current period. 
D)  exceed the lower of the original cost or the net realisable value in the current period. 
A)  exceed the net realisable value in the previous period. 
B)  exceed the lower of the original cost. 
C)  exceed the net realisable value in the current period. 
D)  exceed the lower of the original cost or the net realisable value in the current period.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Identify and discuss the items included as inventory cost.

Accepted Answer

Inventory cost includes the direct costs

Question 17

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 
A)  $10 000 
B)  $11 800 
C)  $12 000 
D)  $14 000

Question 18

Digitoll Ltd produces a range of computer accessories.One product is a webcam.The following are the summary costs for the web-cam for the period ended 31 December 2012:
 
The production level this period was normal at 10 000 units.What is the cost per unit (rounded to the nearest cent)in accordance with AASB 102 requirements?

Accepted Answer

A)  $11.00 
B)  $10.40 
C)  $14.10 
D)  $11.90 
A)  $11.00 
B)  $10.40 
C)  $14.10 
D)  $11.90

Question 19

AASB 102 Inventories applies to biological assets related to agricultural activity.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 7: Inventory

AASB 102 provides that not-for-profit entities:

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 with respect to positive accounting theory?

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

In periods where production costs or purchase prices of inventory items do not change,it does not matter which inventory method is adopted as this would generate the same value for cost of goods sold and ending inventory.

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

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

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

A company engaged in buying and selling equity securities should consider this asset as inventory and should be accounted for in accordance with AASB 102.

The inventory record of Palm Springs Ltd 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 AASB 102?

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

AASB 102 require that inventories be reinstated to the extent that the new carrying amount does not:

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

Identify and discuss the items included as inventory cost.

AASB 102 Inventories applies to biological assets related to agricultural activity.

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

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations 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 Leases

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 Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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