Deck 4: Inventories

Question 1

Inventories are to be measured at the lower of cost or net realisable value. Net realisable value is defined in AASB 102/IAS 2 Inventories as:

A) the fair value of the inventories at purchase date.
B) the amount paid for the purchase of the inventories in an arm's length transaction.
C) the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
D) the estimated buying price in the ordinary course of business.

Answer 1

C

Question 2

The terms '2/10, n/30' appearing on an invoice for the sale/purchase of inventories means that the buyer:

A) will receive a 10% discount if paid within 2 days of the invoice date, otherwise the full amount must be paid within 30 days of the invoice date.
B) will receive a 2% discount if paid within 10 days of the invoice date, otherwise the full amount must be paid within 30 days of the invoice date.
C) has 10 days from the invoice date to pay the full amount or a 2% surcharge will be applied and total amount owing must be paid within 30 days of invoice date.
D) has 2 days from the invoice date to pay the full amount or a 7% surcharge will be applied and total amount owing must be paid within 30 days of invoice date.

Answer 2

B

Question 3

Which of the following measurement rules applies to inventories subsequent to their initial measurement?

A) Historical cost
B) Fair value
C) Replacement cost
D) Lower of cost and net realisable value

Answer 3

D

Question 4

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

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

Question 5

Which of the following statements is correct?

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

Question 6

Taxes may be included in the cost of inventories except for those taxes that are:

A) levied on the inventories by a foreign government.
B) recoverable by the entity from the taxation authority.
C) in the nature of import duties.
D) imposed on the raw materials component of manufactured inventories.

Question 7

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

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

Question 8

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

Question 9

AASB 102 Inventories specifies that the measurement rule for inventories is:

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

Question 10

AASB 102 Inventories applies to the accounting for:

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

Question 11

Which of the following is specifically excluded by AASB 102 from the cost of inventories measurement?

A) Trade discounts received
B) Freight (where the terms of sale are FOB destination)
C) Costs of designing inventory for an individual customer.
D) Costs of converting supplies into specific products for sale.

Question 12

Which of the following are common classifications for inventories in the financial statements: $\begin{array}{lllll}&I.&II.&III.&IV\\\text { Raw materials } & \text { No } & \text { Yes } & \text { No } & \text { Yes } \\\text { Finished goods } & \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \\\text { Work in progress } & \text { No } & \text { No } & \text { Yes } & \text { Yes } \\\text { Assets held for resale } & \text { Yes } & \text { No } & \text { No } & \text { Yes }\end{array}$

A) I.
B) II.
C) III.
D) IV.

Question 13

Stock take discrepancies between a count sheet and recorded quantities in the ledger may arise due to which of the following: I. Stock in transit purchased under FOB destination terms
II. Consignment stock included in the physical count by the consignee
III. Sales returns not being processed into the ledger
IV. Theft of stock during the year

A) I, II and III
B) I, III and IV
C) II, III and IV
D) I, II and IV

Question 14

Under the periodic inventories approach, an appropriate journal entry to measure closing inventories would be:

Question 15

Net realisable value of inventories may fall below cost for a number of reasons including: I. $\quad$ Product obsolescence
II. $\quad$ Piysical deterioration of irventories
III. $\quad$ Arl increase in the expected replacernent costs of the irventories
IV. $\quad$ Arl increase in the estirnated costs of completion
V. $\quad$ An error in quartities purchased causing overstocking

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

Question 16

AASB 102 allows which of the following to be capitalised into the cost of inventories?

A) Selling costs.
B) Normal costs of material wastage.
C) Storage costs for finished goods.
D) Administrative overheads.

Question 17

Under the periodic inventories approach, the cost of goods sold is calculated as:

A) Opening inventories + net purchases + closing inventories
B) Opening inventories - net purchases + closing inventories
C) Beginning inventories + net purchases - ending inventories
D) Beginning inventories - net purchases - ending inventories

Question 18

When an entity's operating cycle is not clearly identifiable it is assumed to have a duration of:

A) three months.
B) six months.
C) 12 months.
D) 2 years.

Question 19

White Cotton Ltd uses a periodic inventories system and rounds the average unit cost to the nearest dollar. The following data relates to White Cotton Ltd for the year ended 30 June 2021. $\begin{array}{ll}\text { Opening inventories }&1000 \text { units@average cost of } \$ 20 \text { each }\\\text { January purchases }&2500 \text { units@\$22 each }\\\text { February sales } & 1200 \text { units } \\\text { March sales returns } & 50 \text { units } \\\text { June sales } & 500 \text { units }\\\text { July purchases } & 3000 \text { units @\$25 each } \\\text { August sales } & 2400 \text { units } \\\text { October purchases } & 5000 \text { units @\$24 each } \\\text { November cales } & 4000 \text { units }\end{array}$ The cost of goods sold for the year using the weighted average method is:

A) $194 400
B) $186 300
C) $193 200
D) $185 150

Question 20

Trio Ltd uses a periodic inventories system and rounds the average unit cost to the nearest dollar. The following data relates to Trio Ltd for the year ended 30 June 2021. $\begin{array}{ll}\text { Opening inventories }&\text { 150units@average cost of \$32 each }\\\text { January purchases } & 35 \text { units @ \$35 each } \\\text { March purchases } & 18 \text { units @ } \$ 38 \text { each }\\\text { June purchases } & 50 \text { units @ \$30 each } \\\text { September purchases } & 27 \text { units @ \$32 each } \\\text { Ending inventories } & 65 \text { units }\end{array}$ The cost of ending inventories using the weighted average cost method (rounded to the nearest dollar) is:

A) $2 106
B) $2 136
C) $4 273
D) $6 966

Question 21

AASB 102 Inventories requires items of inventories that are used by a business as components in a self-constructed property asset to be:

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

Question 22

AASB 102 Inventories requires separate disclosure of:

A) the amount of inventories recognised as an expense.
B) the carrying amount of inventories pledged as security for loans.
C) the circumstances that led to a reversal of a previous write down of inventories.
D) All of these options.

Question 23

AASB 102 Inventories requires service providers to write down their inventories to net realisable value:

A) on a class-by-class basis (e.g raw materials).
B) on an item-by-item basis.
C) on a group basis.
D) according to location or geographical segment within the entity.

Question 24

When determining the net realisable value of inventories, estimates must be made of which of the following: I. $\quad$ Estimated selling costs
II. $\quad$ Expected selling price
III. $\quad$ Expected replacernent cost
IV. $\quad$ Estimated costs of completion (if ary)

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

Question 25

Missy Limited sells household cleaners and had the following items of inventories at reporting date. $\begin{array}{rrr}\text { Ittem }&\text { Quantity } & \text { Cost/unit } & \text { NRV/unit } \\\text { Window }&50 & \$ 25 & \$ 20 \\\text { cleaners }\\\text { Vacuum }&20 & \$ 150 & \$ 160\\\text { cleaners }\end{array}$ What is the adjustment necessary at reporting date?

A) DR Inventories $250
B) DR Inventories $0
C) CR Inventories $100
D) CR Inventories $50

Question 26

Which of the following is not recognised as an expense in accordance with AASB 102:

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

Question 27

Where the net realisable value of inventories falls below cost, AASB 102 Inventories requires that:

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

Question 28

The write down of inventories to net realisable value in a prior period:

A) can be reversed in a later period with no upper limit from a previous write down.
B) cannot be reversed in a later period..
C) can be reversed in a later period but only to the upper limit of the original write down.
D) can be reversed in a later period so long as the value is recovered within 2 years of the original write down.

Question 29

AASB 102 requires disclosure of which of the following? I. The carrying amount of inventories by class.
II. The accounting policy adopted by the entity in relation to inventories valuation.
III. Separate disclosure of the carrying amount of inventories carried at cost and those carried at net realisable value.
IV. Details of reversals of prior year write-downs.

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

Question 30

'Net realisable value' of inventories is defined in AASB 102 as the estimated selling price in the ordinary course of business:

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