Deck 19: Inventories

Question 1

For which of these would the specific identification method of costing inventory be unsuitable?

A) Gold jewellery
B) Motor vehicles
C) Works of art
D) Petrol at a service station

Answer 1

D

Question 2

Inventory is normally classified in the balance sheet as a:

A) non-current asset.
B) current asset.
C) negative asset.
D) current liability.

Answer 2

B

Question 3

Which of these is not included in the cost of inventory as defined by IAS 2/AASB 102?

A) Cost of purchase.
B) Costs incurred in bringing the inventory to its present location and condition.
C) GST.
D) Import duties.

Answer 3

C

Question 4

A) $16 900.
B) $17 500.
C) $19 500.
D) $21 000.

Question 5

Which item should not be included in the income statement's cost of inventory?

A) The invoice price of the goods
B) Costs associated with receiving and inspecting the goods
C) Costs incurred in preparing the goods for sale
D) GST

Question 6

A major theoretical problem in accounting for inventory is:

A) calculating the cost of purchases.
B) allocating costs between cost of sales and stock on hand.
C) counting the stock.
D) deciding which goods are obsolete.

Question 7

The accounting standards governing determination of the cost of inventories are:

A) IAS 2/AASB 102.
B) IAS 8/AASB 108.
C) IAS 13/AASB 108.
D) IAS 34/AASB 134.

Question 8

Which of these is not one of the methods used to assign costs between cost of sales and closing inventory?

A) Specific identification
B) First-in first-out
C) Lower of cost and net realisable value
D) Weighted average

Question 9

Which of these is not a step in a properly conducted stocktake?

A) Attach an inventory ticket to stock items that have been counted.
B) Account for all prenumbered inventory tickets.
C) Recount some items by a supervisor or auditor.
D) Sell off of damaged goods.

Question 10

In performing a stocktake care must be taken with goods in transit. Which of these statements is true?

A) Stock on consignment is regarded as sold by the consignor.
B) Stock on consignment is included in the stock of the consignor.
C) Goods in transit should be included in both the purchasers and the seller's inventory.
D) Stock on consignment is included in the stock of the consignee.

Question 11

A physical stocktake is carried out:

A) only under the periodic inventory system.
B) only under the perpetual inventory system.
C) under both the periodic and perpetual systems.
D) under neither the periodic nor the perpetual systems.

Question 12

Which of the following is a disadvantage to business of the LIFO method of applying costs to inventory?

A) Current income is matched with the most recent costs of acquiring goods.
B) It understates the balance sheet value for inventory.
C) It is difficult for a computer program to apply the method.
D) If it is allowed for tax purposes, in times of rising prices it results in less tax being paid in the current period.

Question 13

A) IAS 10/AASB 1010.
B) IAS 21/AASB 1021.
C) IAS 2/ AASB 102.
D) IAS 103/AASB 1030.

Question 14

Indigo Ltd uses the FIFO assumption with the periodic inventory method.
Units Unit Total
Cost cost
Beginning inventory 12 $10 $120
Purchase 10 $12 $120
Purchase 6 $11 $66
Sales during year were 16 units. What was the value assigned to the closing stock of this item at the end of the period?

A) $66
B) $120
C) $138
D) $144

Question 15

A) Land held for resale
B) Cash at bank
C) Work in process
D) Computers

Question 16

If inventory costs are rising which method gives the highest profit?

A) Weighted average.
B) FIFO.
C) LIFO.
D) It is not possible to calculate which method gives the highest profit.

Question 17

A) $3890.
B) $3930.
C) $3980.
D) $4140.

Question 18

A) $8333.
B) $8000.
C) $7300.
D) $6000.

Question 19

A physical count of inventory on hand is known as:

A) perpetual inventory method.
B) stocktake.
C) realisable value.
D) average cost.

Question 20

Millibrand Co uses a periodic inventory system with the specific identification method of cost assignment.
Date Units Unit cost
$
Beginning inventory July 1 1000 9
Purchase 12 2000 11
Purchase 26 1000 12
On 27 July 500 units from beginning inventory and 1000 units from the 12 July purchase were sold. What was the value of ending inventory at 31 July?

A) $20 500
B) $23 000
C) $27 500
D) $28 500

Question 21

The essence of the perpetual method of accounting for inventory is:

A) it produces a higher gross profit than the periodic method.
B) a stocktake is performed.
C) cost of sales is calculated at the end of the accounting period.
D) all movements in each item of stock are tracked via detailed inventory records.

Question 22

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is true?

A) A new average cost is calculated after each sale and each purchase.
B) A new average cost is calculated after each sale.
C) A new average cost is calculated after each purchase.
D) A new average cost is calculated at the end of each month.

Question 23

The essence of the perpetual method of accounting for inventory is:

A) all movements in each item of stock are tracked via detailed inventory records.
B) a stocktake is performed.
C) cost of sales is calculated at the end of the accounting period.
D) it is useful for high value, low volume items.

Question 24

With the perpetual method of accounting for inventory, the costing assumption, such as first-in first-out, is applied to:

A) cost of sales at the end of the accounting year.
B) each sale via stock cards or computer records.
C) inventory at the end of the month.
D) the current asset inventory in the balance sheet.

Question 25

The average cost of AD computer modems on 30 March, as per the stock card, is $21.06. If 200 modems are sold at $24.00 each, what is the cost of the modems charged to the income statement, assuming the weighted average method of costing is used?

A) $4000
B) $4800
C) $4212
D) $3800

Question 26

Montreal Furniture uses a periodic inventory system. During an accounting year many purchases and sales of goods occur. For Montreal, the balance in the general ledger inventory account:

A) does not change until a stock-take is carried out.
B) represents the goods on hand at any given point in time.
C) reports the goods purchased since the beginning of the accounting period.
D) will usually be zero except at a balance sheet date.

Question 27

Which statement concerning the perpetual inventory method is incorrect?

A) A stocktake is required to estimate cost of sales.
B) A continuous record is kept of all movements in inventory.
C) With the increased use of computers it has become the most common system.
D) Cost of sales is calculated for each transaction.

Question 28

Which statement relating to the determination of the cost of inventory in a computerised system is not true?

A) Determining the cost of inventory is greatly simplified compared to a manual system.
B) Computerised systems generally use the periodic inventory system.
C) Computerised inventory systems are now used by most firms.
D) The system can automatically produce reorder information.

Question 29

How many of these are advantages of the weighted average method of applying costs to inventory?
$\bullet$ It is not subject to profit manipulation.
$\bullet$ The profit and closing inventory values tend to be 'smoothed' compared to other methods.
$\bullet$ It is simple to understand.

A) 0
B) 1
C) 2
D) 3

Question 30

Assuming rising prices, which statement is correct?

A) FIFO reports a lower value for cost of sales than other methods.
B) FIFO reports a lower profit than other methods.
C) FIFO reports a lower value for closing inventory than other methods.
D) With the FIFO assumption, assuming prices are rising, it is not possible to calculate whether cost of sales/inventory is lower or higher than it would be if other assumptions about inventory valuation were made.

Question 31

Which statement is correct?

A) LIFO assumes the last goods purchased are the first goods sold.
B) LIFO assumes the first goods purchased are the first goods sold.
C) LIFO assumes that cost of sales consists of the oldest purchases.
D) LIFO assumes that stock at end consists of the most recent purchases.

Question 32

If inventory costs are declining, profit will be highest if the inventory method used is:

A) weighted average.
B) FIFO.
C) LIFO.
D) It is not possible to answer the question.

Question 33

Which statement concerning inventory is not true?

A) Consistency is an important consideration when alternative accounting methods exist.
B) Once an inventory costing method is selected management should not deliberately switch to another to manipulate profits.
C) Accounting data produced in different accounting periods is not comparable if arbitrary changes in accounting methods are permitted.
D) Consistency rules out ever switching to an alternative accounting method.

Question 34

Identify the statement relating to the lower of cost and net realisable value rule that is untrue.

A) It results in probable losses being recorded in the period when they are first noticed rather than when the sale occurs.
B) The rule is based on the accounting principle of prudence (conservatism).
C) The gross profit reported in the period when the rule is applied is higher than it otherwise would be.
D) The rule is applied separately to each item of inventory or to groups of inventory.

Question 35

Under IAS 2/AASB 102 the costing method that is not permitted is:

A) LIFO.
B) weighted/moving average.
C) FIFO.
D) specific identification.

Question 36

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is untrue?

A) The formula for average cost is cost of goods available for sale divided by units for sale.
B) A new average cost is calculated after each sale.
C) A new average cost is calculated after each purchase return.
D) In periods of rising prices the profit result is between that of the FIFO and LIFO methods.

Question 37

A) $10 000
B) $10 400
C) $11 129
D) $20 000

Question 38

A way that products can be unequivocally identified is by the use of:

A) ledger numbers.
B) invoice numbers.
C) bar codes.
D) photos.

Question 39

With the perpetual method of accounting for inventory the first-in first-out assumption is applied to:

A) cost of sales at the end of the accounting year.
B) each sale via stock cards or computer records.
C) inventory at the end of the month.
D) cost of sales at the end of the month.

Question 40

If inventory prices are rising the method of inventory valuation that gives the highest profit and the highest ending inventory is:

A) FIFO.
B) LIFO.
C) Weighted average.
D) Perpetual method.

Question 41

Net realisable value in relation to inventory is:

A) estimated selling price less stock loss.
B) estimated discounted value.
C) estimated replacement value.
D) estimated selling price less anticipated further costs to complete the sale.

Question 42

Won Inc has an historical gross profit percentage of 35%. Net purchases for six months were $1400 and sales were $2000. Inventory at the end of the previous period was $200. If Won Inc prepares an interim balance sheet the amount that can be estimated for closing inventory is:

A) $100.
B) $300.
C) $1000.
D) $400.

Question 43

A) $39 600
B) $22 600
C) $20 400
D) $60 000

Question 44

The ratio that indicates an entity's overall mark-up on goods sold is the:

A) return on inventory ratio.
B) gross profit ratio.
C) inventory turnover ratio.
D) profit margin ratio.

Question 45

Which statement is untrue?

A) Inventory is normally valued at cost.
B) In certain circumstances some inventory items will be valued at below cost.
C) In certain circumstances some inventory items will be valued at above cost.
D) Net realisable value is related to estimated market value.

Question 46

If Carmel knows that the ending inventory at retail for her corner store is $16 000 and her cost to retail percentage is 65%, her ending inventory at cost can be estimated as:

A) $16 000.
B) $10 400.
C) $26 400.
D) $19 000.

Question 47

The lower of cost or net realisable value procedure is used with which of the following?
I) FIFO
Ii) Weighted average
Iii) The perpetual method

A) i.
B) ii
C) i, ii
D) i, ii, iii

Question 48

How many of these are reasons for the selling value of some inventory items falling below their cost price?
$\bullet$ Obsolescence
$\bullet$ Damage
$\bullet$ Past use-by date
$\bullet$ A rise in the market price

A) 1
B) 2
C) 3
D) 4

Question 49

All of these statements about the presentation of inventory in financial reports are correct except which of the following?

A) The assumption used to assign costs to inventory should be disclosed.
B) The general basis of valuation should be shown,e.g. cost, NRV.
C) Inventory shown on the balance sheet should always be in a saleable condition.
D) Inventory should be classified into its current and non-current components.

Question 50

A) $690 000
B) $410 000
C) $280 000
D) $270 000

Question 51

Which of these is not a possible source of error in calculating closing inventory?

A) An incorrect cut-off between accounting periods.
B) Mistakes in counting during the stocktake.
C) Mistakes in the price at which the goods are sold to customers.
D) Mistakes in dealing with goods on consignment.

Question 52

A) $110 000.
B) $66 000.
C) $490 000.
D) $90 000.

Question 53

The formula, cost of sales/average inventory, measures the:

A) gross profit ratio.
B) number of times, on average, that inventory is turned over per year.
C) mark-up on inventory expressed as a percentage of the cost price.
D) mark-up on inventory expressed as a percentage of the selling price.

Question 54

Nugyen Co purchased goods for $3500. While on display, the goods were damaged and it is estimated that they can now only be sold for $2000. Additional marketing and distribution costs are $100. The net realisable value of the goods is:

A) $1900.
B) $2000.
C) $3500.
D) $3400.

Question 55

At 31 December 2014, the end of their accounting year, the Zanzibar trading company understated ending inventory by $4,250. The profit for 2014 will be:

A) understated.
B) correctly stated.
C) overstated.
D) dependant on whether or not the inventory increased during 2014.

Question 56

The statement relating to the lower of cost and net realisable value rule that is untrue is which of the following?

A) It results in probable losses being recorded in the period when they are first noticed rather than when the sale occurs.
B) The rule is based on the accounting principle of conservatism (prudence).
C) The gross profit reported in the period when the rule is applied is higher than it otherwise would be.
D) The rule is applied separately to each item of inventory or to groups of inventory items.

Question 57

All the statements concerning the retail inventory method of estimating closing stock are correct except which of the following?

A) A stocktake is carried out, valued at retail and then converted to cost by applying the historical gross profit percentage.
B) The ratio of cost to retail is goods available for sale at cost divided by the goods available for sale at retail.
C) Differences in the mix of inventory compared to the mix used to determine the cost ratio does not affect the accuracy of the method.
D) It can be applied with or without a physical stocktake being carried out.

Question 58

Under the FIFO method sales returns are costed back into inventory at:

A) the original cost price that was attached to the original sale.
B) an average cost price.
C) a price determined by the accountant.
D) the most recent cost price attached to a sale.

Question 59

Which of the following information concerning inventory is not required to be disclosed in the external financial reports?

A) Finished goods
B) Work in process
C) Inventory turnover ratio
D) Method of valuation,e.g. FIFO, weighted average

Question 60

Mikey uses a periodic inventory system and committed an error that understated inventory at the end of Year One. If no further errors occur, at the end of Year Two:

A) profit is overstated; equity is overstated.
B) profit is overstated; equity is correct.
C) profit is understated; equity is understated.
D) profit is understated; equity is overstated.