Question 1

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 C

Question 2

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. B

Question 3

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 2013:
 
The cost of ending inventory using the weighted average cost method (rounded to the nearest dollar) is:

Accepted Answer

A)  $459 
B)  $465 
C)  $499 
D)  $483 
A)  $459 
B)  $465 
C)  $499 
D)  $483 C

Question 4

The terms '2/7' appearing on an invoice for the sale/purchase of inventory means that the buyer:

Accepted Answer

A)  will receive a 2% discount if paid within 7 days of the invoice date; 
B)  will receive a 7% discount if paid within 2 days of the invoice date; 
C)  has 7 days from the invoice date to pay or will be charged a 2% surcharge; 
D)  has 2 days from the invoice date to pay or will be charged a 7% surcharge. 
A)  will receive a 2% discount if paid within 7 days of the invoice date; 
B)  will receive a 7% discount if paid within 2 days of the invoice date; 
C)  has 7 days from the invoice date to pay or will be charged a 2% surcharge; 
D)  has 2 days from the invoice date to pay or will be charged a 7% surcharge.

Question 5

The measurement rule for inventories, mandated by IAS 2 Inventories, is:

Accepted Answer

A)  lower of fair value and selling price; 
B)  lower of cost and net realisable value; 
C)  higher of initial cost and realisable value; 
D)  higher of completion costs and replacement costs. 
A)  lower of fair value and selling price; 
B)  lower of cost and net realisable value; 
C)  higher of initial cost and realisable value; 
D)  higher of completion costs and replacement costs.

Question 6

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 7

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 8

Under the periodic inventory approach an appropriate journal entry to measure closing inventory is:

Accepted Answer

A)  DR Opening inventory (cost of goods sold expense) CR Inventory (asset); 
B)  DR Purchases (expense) CR Inventory (asset); 
C)  DR Inventory (asset) CR Closing inventory (cost of goods sold expense); 
D)  DR Purchases returns (cost of goods sold expense) CR Inventory (asset). 
A)  DR Opening inventory (cost of goods sold expense) CR Inventory (asset); 
B)  DR Purchases (expense) CR Inventory (asset); 
C)  DR Inventory (asset) CR Closing inventory (cost of goods sold expense); 
D)  DR Purchases returns (cost of goods sold expense) CR Inventory (asset).

Question 9

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.

Question 10

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.

Question 11

Under the periodic inventory approach the cost of goods sold 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 12

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 13

IAS 2 requires disclosure of the following:

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 14

Ming Limited had the following items of inventory at reporting date:
  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 15

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 16

IAS 2 Inventories 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 17

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

Accepted Answer

A)  aggregated into the 'cost of goods sold' 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 goods sold' 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 18

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

Accepted Answer

A)  Cost of goods sold 
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 goods sold 
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.

Question 19

'Net realisable value' of inventory is defined as the net amount that an enterprise expects to realise from the sale of the inventory:

Accepted Answer

A)  in the ordinary course of operations less estimated costs of completion and costs necessary to make the sale; 
B)  plus the estimated costs of completion plus the estimated costs necessary to make the sale; 
C)  in a forced sale; 
D)  plus the estimated costs of completion. 
A)  in the ordinary course of operations less estimated costs of completion and costs necessary to make the sale; 
B)  plus the estimated costs of completion plus the estimated costs necessary to make the sale; 
C)  in a forced sale; 
D)  plus the estimated costs of completion.

Question 20

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.

Exam 9: Inventories

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

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

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 2013: The cost of ending inventory using the weighted average cost method (rounded to the nearest dollar) is:

The terms '2/7' appearing on an invoice for the sale/purchase of inventory means that the buyer:

The measurement rule for inventories, mandated by IAS 2 Inventories, is:

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.

Commodity broker traders are able to measure their inventories at:

Under the periodic inventory approach an appropriate journal entry to measure closing inventory is:

Which of the following statements is correct?

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

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

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

IAS 2 requires disclosure of the following:

Ming Limited had the following items of inventory at reporting date: The adjustment necessary at reporting date is:

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

IAS 2 Inventories applies to the accounting for:

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

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

'Net realisable value' of inventory is defined as the net amount that an enterprise expects to realise from the sale of the inventory:

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

The Conceptual Framework of the Iasb

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Employee Benefits

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Translation of the Financial Statements of Foreign Entities

Associates and Joint Ventures

Joint Arrangements

Filters