Question 1

Which of the following is not recognised as an expense in accordance with IAS 2?

Accepted Answer

A)  Cost of sales; 
B)  Write-downs of inventories to net realisable value; 
C)  Reversal of write downs to net realisable value; 
D)  Inventory items used by an entity as components in self-constructed property, plant or equipment. 
A)  Cost of sales; 
B)  Write-downs of inventories to net realisable value; 
C)  Reversal of write downs to net realisable value; 
D)  Inventory items used by an entity as components in self-constructed property, plant or equipment. D

Question 2

Where the net realisable value of inventory falls below cost, IAS 2 Inventories, requires that:

Accepted Answer

A)  the inventory continue to be carried in the Statement of Financial Position at cost; 
B)  the inventory be written down to net realisable value; 
C)  no adjustment be made, but the difference between net realisable value and cost be disclosed in the notes to the financial statements; 
D)  the difference be added to the carrying amount of the inventory. 
A)  the inventory continue to be carried in the Statement of Financial Position at cost; 
B)  the inventory be written down to net realisable value; 
C)  no adjustment be made, but the difference between net realisable value and cost be disclosed in the notes to the financial statements; 
D)  the difference be added to the carrying amount of the inventory. B

Question 3

Which of the following statements is correct?

Accepted Answer

A)  the periodic method of accounting for inventory will always result in a higher closing inventory balance than the perpetual method; 
B)  the periodic method of accounting for inventory will always result in a lower closing inventory balance than the perpetual method; 
C)  closing inventory will always be the same under the periodic and perpetual methods; 
D)  the relationship between the closing inventory balance under the periodic and perpetual methods will depend on whether the FIFO or weighted average method is used to value inventory. 
A)  the periodic method of accounting for inventory will always result in a higher closing inventory balance than the perpetual method; 
B)  the periodic method of accounting for inventory will always result in a lower closing inventory balance than the perpetual method; 
C)  closing inventory will always be the same under the periodic and perpetual methods; 
D)  the relationship between the closing inventory balance under the periodic and perpetual methods will depend on whether the FIFO or weighted average method is used to value inventory. C

Question 4

If the selling price of inventory that has been written down to net realisable value in a prior period, subsequently recovers, the:

Accepted Answer

A)  previous amount of the write-down can be reversed; 
B)  carrying amount of the inventory cannot be adjusted; 
C)  value adjustment can be recognised immediately in equity; 
D)  adjustment must be recognised in a 'provision for future inventory write-downs' account. 
A)  previous amount of the write-down can be reversed; 
B)  carrying amount of the inventory cannot be adjusted; 
C)  value adjustment can be recognised immediately in equity; 
D)  adjustment must be recognised in a 'provision for future inventory write-downs' account.

Question 5

When an inventory costing formula is changed, the change is required to be applied:

Accepted Answer

A)  prospectively and the adjustment taken through the current profit or loss; 
B)  retrospectively and the adjustment taken through the opening balance of retained earnings; 
C)  prospectively and the current period adjustment recognised directly in equity; 
D)  retrospectively and the adjustment recognised as an extraordinary gain or loss. 
A)  prospectively and the adjustment taken through the current profit or loss; 
B)  retrospectively and the adjustment taken through the opening balance of retained earnings; 
C)  prospectively and the current period adjustment recognised directly in equity; 
D)  retrospectively and the adjustment recognised as an extraordinary gain or loss.

Question 6

IAS 2 Inventories requires that when inventories are written down to net realisable value, they are written-down:

Accepted Answer

A)  on a class-by-class basis; 
B)  on the basis of industry segment; 
C)  on an item-by-item basis; 
D)  according to geographical segment within the entity. 
A)  on a class-by-class basis; 
B)  on the basis of industry segment; 
C)  on an item-by-item basis; 
D)  according to geographical segment within the entity.

Question 7

Net realisable value of inventories may fall below cost for a number of reasons including: 
I Product obsolescence
II Physical deterioration of inventories
III An increase in the expected replacement costs of the inventory
IV An increase in the estimated costs of completion

Accepted Answer

A)  I, II and IV only; 
B)  I, III and IV only; 
C)  II, III and IV only; 
D)  I and II only. 
A)  I, II and IV only; 
B)  I, III and IV only; 
C)  II, III and IV only; 
D)  I and II only.

Question 8

The weighted average inventory costing method is particularly suitable to inventory where:

Accepted Answer

A)  dissimilar products are stored in separate locations; 
B)  the entity carries stocks of raw materials, work-in-progress and finished goods; 
C)  goods have distinct use-by dates and the goods produced first must be sold earliest; 
D)  homogeneous products are mixed together. 
A)  dissimilar products are stored in separate locations; 
B)  the entity carries stocks of raw materials, work-in-progress and finished goods; 
C)  goods have distinct use-by dates and the goods produced first must be sold earliest; 
D)  homogeneous products are mixed together.

Question 9

Commodity broker traders are able to measure their inventories at:

Accepted Answer

A)  replacement cost; 
B)  nominal cost; 
C)  fair value less costs of disposal; 
D)  current cost. 
A)  replacement cost; 
B)  nominal cost; 
C)  fair value less costs of disposal; 
D)  current cost.

Question 10

IAS 2 prohibits which of the following from being included in the cost of inventory?

Accepted Answer

A)  trade discounts received; 
B)  freight (where the terms of sale are FOB destination); 
C)  production overheads; 
D)  import duties. 
A)  trade discounts received; 
B)  freight (where the terms of sale are FOB destination); 
C)  production overheads; 
D)  import duties.

Question 11

IAS 2 applies to the accounting for:

Accepted Answer

A)  work in progress under construction contracts; 
B)  financial instruments; 
C)  biological assets; 
D)  materials consumed in the manufacture of knitting machines for sale. 
A)  work in progress under construction contracts; 
B)  financial instruments; 
C)  biological assets; 
D)  materials consumed in the manufacture of knitting machines for sale.

Question 12

When an entity's operating cycle is not clearly identifiable it is assumed to be:

Accepted Answer

A)  three months; 
B)  six months; 
C)  nine months; 
D)  12 months. 
A)  three months; 
B)  six months; 
C)  nine months; 
D)  12 months.

Question 13

Ming Limited had the following items of inventory at reporting date: $\begin{array} { l c c c } 
\text { Item } & \text { Quantity } & \text { Cost/unit } & \text { NRV/unit } \
& & £ & £ \
\text { Refrigerators } & 10 & 100 & 95 \
\text { Stoves } & 20 & 80 & 85
\end{array}$
The adjustment necessary at reporting date is:

Accepted Answer

A)  DR Inventory £50; 
B)  DR Inventory £100; 
C)  CR Inventory £50; 
D)  CR Inventory £0. 
A)  DR Inventory £50; 
B)  DR Inventory £100; 
C)  CR Inventory £50; 
D)  CR Inventory £0.

Question 14

Under IAS 2 Inventories, items of inventory that are used by business entity as components in a self-constructed property asset are required to be:

Accepted Answer

A)  aggregated into the 'cost of sales' expense in the period in which the items are used; 
B)  expensed directly into equity in the period in which the items are used; 
C)  capitalised and depreciated; 
D)  added to a 'property construction' provision account. 
A)  aggregated into the 'cost of sales' expense in the period in which the items are used; 
B)  expensed directly into equity in the period in which the items are used; 
C)  capitalised and depreciated; 
D)  added to a 'property construction' provision account.

Question 15

Taxes may be included in the costs of inventory unless they are:

Accepted Answer

A)  levied on the entity by a foreign government; 
B)  in respect to the raw materials component of manufactured inventory; 
C)  recoverable by the entity from the taxing authority; 
D)  in the nature of import duties. 
A)  levied on the entity by a foreign government; 
B)  in respect to the raw materials component of manufactured inventory; 
C)  recoverable by the entity from the taxing authority; 
D)  in the nature of import duties.

Question 16

Under the periodic inventory approach the cost of sales during a period is determined as follows:

Accepted Answer

A)  beginning inventory + net purchases - ending inventory; 
B)  beginning inventory - net purchases - ending inventory; 
C)  opening inventory + net purchases + closing inventory; 
D)  opening inventory - net purchases + closing inventory. 
A)  beginning inventory + net purchases - ending inventory; 
B)  beginning inventory - net purchases - ending inventory; 
C)  opening inventory + net purchases + closing inventory; 
D)  opening inventory - net purchases + closing inventory.

Question 17

IAS 2 requires disclosure of the following: I$\quad$Details of reversals of prior year write-downs
II$\quad$Separate disclosure of the carrying amount of inventories carried at
$\quad$ cost and those carried at net realisable value
III$\quad$The accounting policy adopted by the entity in relation to inventory valuation
IV$\quad$The carrving amount of inventory by class

Accepted Answer

A)  II and III only; 
B)  I, II and III only; 
C)  II, III and IV only; 
D)  I, II, III and IV. 
A)  II and III only; 
B)  I, II and III only; 
C)  II, III and IV only; 
D)  I, II, III and IV.

Question 18

Duo Ltd uses a periodic inventory system and rounds the average unit cost to the nearest dollar. The following data relates to Duo Ltd for the year ended 30 June 2016: $\begin{array} { l l } 
\text { Opening inventory } & 15 \text { units @ average cost of } € 25 \text { each } \
\text { January purchases } & 10 \text { units @ €24 each } \
\text { July purchases } & 25 \text { units @ €26 each } \
\text { October purchases } & 20 \text { units @ €24 each } \
\text { Ending inventory } & 20 \text { units }
\end{array}$
The cost of ending inventory at 30 June 2016 using the weighted average cost method (rounded to the nearest euro) is:

Accepted Answer

A)  €459; 
B)  €465; 
C)  €499; 
D)  €483. 
A)  €459; 
B)  €465; 
C)  €499; 
D)  €483.

Question 19

IAS 2 allows which of the following to be capitalised into the cost of inventory?

Accepted Answer

A)  storage costs for finished goods; 
B)  selling costs; 
C)  normal wastage costs; 
D)  administrative overheads. 
A)  storage costs for finished goods; 
B)  selling costs; 
C)  normal wastage costs; 
D)  administrative overheads.

Question 20

Which of the following is an appropriate journal entry to recognise inventory items that have been lost?

Accepted Answer

A)  
DR Inventory(asset)
CR Provision for inventory losses (liability); 
B) 
DR Inventory losses (expense) 
CR Inventory (asset); 
C)  DR Cost of sales (expense) 
CR Inventory (asset); 
D) 
DR Provision for Inventory losses (liability) 
CR Inventory (asset). 
A)  
DR Inventory(asset)
CR Provision for inventory losses (liability); 
B) 
DR Inventory losses (expense) 
CR Inventory (asset); 
C)  DR Cost of sales (expense) 
CR Inventory (asset); 
D) 
DR Provision for Inventory losses (liability) 
CR Inventory (asset).

Exam 8: Inventories

Which of the following is not recognised as an expense in accordance with IAS 2?

Where the net realisable value of inventory falls below cost, IAS 2 Inventories, requires that:

Which of the following statements is correct?

If the selling price of inventory that has been written down to net realisable value in a prior period, subsequently recovers, the:

When an inventory costing formula is changed, the change is required to be applied:

IAS 2 Inventories requires that when inventories are written down to net realisable value, they are written-down:

Net realisable value of inventories may fall below cost for a number of reasons including: I Product obsolescence II Physical deterioration of inventories III An increase in the expected replacement costs of the inventory IV An increase in the estimated costs of completion

The weighted average inventory costing method is particularly suitable to inventory where:

Commodity broker traders are able to measure their inventories at:

IAS 2 prohibits which of the following from being included in the cost of inventory?

IAS 2 applies to the accounting for:

When an entity's operating cycle is not clearly identifiable it is assumed to be:

Ming Limited had the following items of inventory at reporting date: Item Quantity Cost/unit NRV/unit £ £ Refrigerators 10 100 95 Stoves 20 80 85 The adjustment necessary at reporting date is:

Under IAS 2 Inventories, items of inventory that are used by business entity as components in a self-constructed property asset are required to be:

Taxes may be included in the costs of inventory unless they are:

Under the periodic inventory approach the cost of sales during a period is determined as follows:

IAS 2 allows which of the following to be capitalised into the cost of inventory?

Which of the following is an appropriate journal entry to recognise inventory items that have been lost?

The Iasb and Its Conceptual Framework

Owners Equity: Share Capital and Reserves

Fair Value Measurement

Revenue From Contracts With Customers

Provisions, Contingent Liabilities and Contingent Assets

Financial Instruments

Share-Based Payment

Employee Benefits

Leases

Impairment of Assets

Financial Statement Presentation

Statement of Cash Flows

Operating Segments

Other Key Notes Disclosures

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Translation of the Financial Statements of Foreign Entities

Agriculture

Associates and Joint Ventures

Joint Arrangements

Revenue From Contracts With Customers

Financial Instruments

Financial Instruments

Share-Based Payment

Exploration for and Evaluation of Mineral Resources

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