Question 1

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

Accepted Answer

A) True 
 B)False

Question 2

Under International Financial Reporting Standards (IFRS), which of the following is true regarding inventory write-downs and/or recovery of a write-down?

Accepted Answer

A)  Recovery of inventory write-downs is prohibited under IFRS. 
B)  IFRS requires separate reporting of reversals of inventory write-downs. 
C)  IFRS requires companies to record write-downs in a separate loss account. 
D)  All of the choices are correct. 
A)  Recovery of inventory write-downs is prohibited under IFRS. 
B)  IFRS requires separate reporting of reversals of inventory write-downs. 
C)  IFRS requires companies to record write-downs in a separate loss account. 
D)  All of the choices are correct.

Question 3

Under International Financial Reporting Standards (IFRS), a company who recorded a loss on a purchase commitment in 2018 cannot record a recovery of that loss in 2019 if prices improve.

Accepted Answer

A) True 
 B)False

Question 4

Lower-of-cost-or-net realizable value as it applies to inventory is best described as the

Accepted Answer

A)  reporting of a loss when there is a decrease in the future utility below the original cost. 
B)  method of determining cost of goods sold. 
C)  assumption to determine inventory flow. 
D)  change in inventory value to net realizable value. 
A)  reporting of a loss when there is a decrease in the future utility below the original cost. 
B)  method of determining cost of goods sold. 
C)  assumption to determine inventory flow. 
D)  change in inventory value to net realizable value.

Question 5

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing commodities held by broker-traders.

Accepted Answer

A) True 
 B)False

Question 6

At the end of the fiscal year, Apha Airlines has an outstanding purchase commitment for the purchase of 1 million gallons of jet fuel at a price of €4.60 per gallon for delivery during the coming summer. The company prices its inventory at the LCNRV. If the market price for jet fuel at the end of the year is €4.25, how would this situation be reflected in the annual financial statements?

Accepted Answer

A)  Record unrealized gains of €350,000 and disclose the existence of the purchase commitment. 
B)  No impact. 
C)  Record unrealized losses of €350,000 and disclose the existence of the purchase commitment. 
D)  Disclose the existence of the purchase commitment. 
A)  Record unrealized gains of €350,000 and disclose the existence of the purchase commitment. 
B)  No impact. 
C)  Record unrealized losses of €350,000 and disclose the existence of the purchase commitment. 
D)  Disclose the existence of the purchase commitment.

Question 7

At the end of the fiscal year, Apha Airlines has an outstanding non-cancellable purchase commitment for the purchase of 1 million gallons of jet fuel at a price of €4.10 per gallon for delivery during the coming summer. The company prices its inventory at the LCNRV.
If the market price for jet fuel at the end of the year is €4.50, how would this situation be reflected in the annual financial statements?

Accepted Answer

A)  Record unrealized gains of €400,000 and disclose the existence of the purchase commitment. 
B)  No impact. 
C)  Record unrealized losses of €400,000 and disclose the existence of the purchase commitment. 
D)  Disclose the existence of the purchase commitment. 
A)  Record unrealized gains of €400,000 and disclose the existence of the purchase commitment. 
B)  No impact. 
C)  Record unrealized losses of €400,000 and disclose the existence of the purchase commitment. 
D)  Disclose the existence of the purchase commitment.

Question 8

Agricultural produce is harvested from biological assets and is measured at fair value less costs to sell at the point of harvest.

Accepted Answer

A) True 
 B)False

Question 9

Shake Company's inventory experienced a decline in value necessitating a write-down to lower of cost or net realizable value (LCNRV) of €230,000. This amount is material to Shake's income statement and the company follows IFRS. Where should Shake Company report this decline in value according to IFRS?
I. As a loss on the income statement.
II. As a separate component of other comprehensive income on the statement of comprehensive income.
III. As part of cost of goods sold on the income statement.

Accepted Answer

A)  Shake must use I. 
B)  Shake must use I, II or III. 
C)  Shake must use I, or III. 
D)  Shake must use III. 
A)  Shake must use I. 
B)  Shake must use I, II or III. 
C)  Shake must use I, or III. 
D)  Shake must use III.

Question 10

In late 2018, Daisy Company entered into a noncancelable purchase contract for which the contract price is now greater than the market price, and Daisy expects that losses will occur when the purchase is executed in early 2019. Under IFRS, Daisy should recognize a liability and corresponding loss in 2018.

Accepted Answer

A) True 
 B)False

Question 11

LCNRV of inventory

Accepted Answer

A)  is always either the net realizable value or its cost. 
B)  should always be equal to net realizable value. 
C)  may sometimes be less than net realizable value. 
D)  should always be equal to net realizable value less costs to complete. 
A)  is always either the net realizable value or its cost. 
B)  should always be equal to net realizable value. 
C)  may sometimes be less than net realizable value. 
D)  should always be equal to net realizable value less costs to complete.

Question 12

Under U.S. GAAP, if inventory is written down under lower-of-cost-or-market, it may not be written back up to its original cost in a subsequent period.

Accepted Answer

A) True 
 B)False

Question 13

Application of the lower-of-cost-or-net realizable value rule results in inconsistency because a company may value inventory at cost in one year and at net realizable value in the next year.

Accepted Answer

A) True 
 B)False

Question 14

Net realizable value is

Accepted Answer

A)  fair value plus estimated costs to complete and make a sale. 
B)  selling price. 
C)  selling price plus estimated costs to complete and make a sale. 
D)  selling price less estimated costs to complete and make a sale. 
A)  fair value plus estimated costs to complete and make a sale. 
B)  selling price. 
C)  selling price plus estimated costs to complete and make a sale. 
D)  selling price less estimated costs to complete and make a sale.

Question 15

What is the effect of freight-in on the cost-retail ratio when using the conventional retail method?

Accepted Answer

A)  Increases the cost-retail ratio. 
B)  No effect on the cost-retail ratio. 
C)  Depends on the amount of the net markups. 
D)  Decreases the cost-retail ratio. 
A)  Increases the cost-retail ratio. 
B)  No effect on the cost-retail ratio. 
C)  Depends on the amount of the net markups. 
D)  Decreases the cost-retail ratio.

Question 16

If a material amount of inventory has been ordered through a formal purchase contract at the statement of financial position date for future delivery at firm prices,

Accepted Answer

A)  this fact must be disclosed. 
B)  disclosure is required only if prices have declined since the date of the order. 
C)  disclosure is required only if prices have since risen substantially. 
D)  an appropriation of retained earnings is necessary. 
A)  this fact must be disclosed. 
B)  disclosure is required only if prices have declined since the date of the order. 
C)  disclosure is required only if prices have since risen substantially. 
D)  an appropriation of retained earnings is necessary.

Question 17

What condition is not necessary in order to use the retail method to provide inventory results?

Accepted Answer

A)  Retailer keeps a record of the total costs of products sold for the period. 
B)  Retailer keeps a record of the total costs and retail value of goods purchased. 
C)  Retailer keeps a record of the total costs and retail value of goods available for sale. 
D)  Retailer keeps a record of sales for the period. 
A)  Retailer keeps a record of the total costs of products sold for the period. 
B)  Retailer keeps a record of the total costs and retail value of goods purchased. 
C)  Retailer keeps a record of the total costs and retail value of goods available for sale. 
D)  Retailer keeps a record of sales for the period.

Question 18

Under IFRS, LIFO is permitted for financial reporting purposes if the company's host country permits it for tax purposes.

Accepted Answer

A) True 
 B)False

Question 19

The gross profit method of inventory valuation is invalid when

Accepted Answer

A)  a portion of the inventory is destroyed. 
B)  there is a substantial increase in inventory during the year. 
C)  there is no beginning inventory because it is the first year of operation. 
D)  None of these are correct. 
A)  a portion of the inventory is destroyed. 
B)  there is a substantial increase in inventory during the year. 
C)  there is no beginning inventory because it is the first year of operation. 
D)  None of these are correct.

Question 20

The unrealized gains and losses related to recording biological assets at their correct valuation are reported as part of other comprehensive income on the statement of comprehensive income.

Accepted Answer

A) True 
 B)False

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

Under International Financial Reporting Standards (IFRS), which of the following is true regarding inventory write-downs and/or recovery of a write-down?

Under International Financial Reporting Standards (IFRS), a company who recorded a loss on a purchase commitment in 2018 cannot record a recovery of that loss in 2019 if prices improve.

Lower-of-cost-or-net realizable value as it applies to inventory is best described as the

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing commodities held by broker-traders.

Agricultural produce is harvested from biological assets and is measured at fair value less costs to sell at the point of harvest.

LCNRV of inventory

Under U.S. GAAP, if inventory is written down under lower-of-cost-or-market, it may not be written back up to its original cost in a subsequent period.

Application of the lower-of-cost-or-net realizable value rule results in inconsistency because a company may value inventory at cost in one year and at net realizable value in the next year.

Net realizable value is

What is the effect of freight-in on the cost-retail ratio when using the conventional retail method?

If a material amount of inventory has been ordered through a formal purchase contract at the statement of financial position date for future delivery at firm prices,

What condition is not necessary in order to use the retail method to provide inventory results?

Under IFRS, LIFO is permitted for financial reporting purposes if the company's host country permits it for tax purposes.

The gross profit method of inventory valuation is invalid when

The unrealized gains and losses related to recording biological assets at their correct valuation are reported as part of other comprehensive income on the statement of comprehensive income.

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters

Exam 9: Inventories: Additional Valuation Issues

A basket purchase occurs when a company agrees to buy inventory weeks or months in advance.

Under International Financial Reporting Standards (IFRS), which of the following is true regarding inventory write-downs and/or recovery of a write-down?

Under International Financial Reporting Standards (IFRS), a company who recorded a loss on a purchase commitment in 2018 cannot record a recovery of that loss in 2019 if prices improve.

Lower-of-cost-or-net realizable value as it applies to inventory is best described as the

Under International Financial Reporting Standards (IFRS), net realizable value is the general rule for valuing commodities held by broker-traders.

Agricultural produce is harvested from biological assets and is measured at fair value less costs to sell at the point of harvest.

LCNRV of inventory

Under U.S. GAAP, if inventory is written down under lower-of-cost-or-market, it may not be written back up to its original cost in a subsequent period.

Application of the lower-of-cost-or-net realizable value rule results in inconsistency because a company may value inventory at cost in one year and at net realizable value in the next year.

Net realizable value is

What is the effect of freight-in on the cost-retail ratio when using the conventional retail method?

If a material amount of inventory has been ordered through a formal purchase contract at the statement of financial position date for future delivery at firm prices,

What condition is not necessary in order to use the retail method to provide inventory results?

Under IFRS, LIFO is permitted for financial reporting purposes if the company's host country permits it for tax purposes.

The gross profit method of inventory valuation is invalid when

The unrealized gains and losses related to recording biological assets at their correct valuation are reported as part of other comprehensive income on the statement of comprehensive income.

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters