Deck 9: Inventories

Question 1

For which reason(s)may the inventory at the end of the year be worth less than its value shown in the books?

A) Decline in replacement prices
B) Physical deterioration
C) Obsolescence
D) All of these

Answer 1

D

Question 2

In which of the following industries would you expect the weight of inventories to be the greater?

A) Computer industry
B) Textile industry
C) Home and personal care industry
D) Media industry

Answer 2

B

Question 3

Which of the following equations is correct?

A) Beginning inventory - Purchases - Cost of goods sold = Ending inventory
B) Beginning inventory - Purchases + Cost of goods sold = Ending inventory
C) Beginning inventory + Purchases + Cost of goods sold = Ending inventory
D) Beginning inventory + Purchases - Cost of goods sold = Ending inventory

Answer 3

D

Question 4

The periodic inventory system relies on periodic physical counting.

Question 5

In a context of rising costs,income reported under FIFO is:

A) Higher than under LIFO or WAC.
B) Lower than under LIFO or WAC.
C) The same as under LIFO or WAC.
D) Sometimes higher,sometimes lower than under LIFO or WAC.

Question 6

In a perpetual inventory system,the fundamental inventory equation is: Beginning inventory + Purchases or additions - Withdrawals = Ending inventory.What is the unknown in this equation?

A) Beginning inventory
B) Purchases or additions
C) Withdrawals
D) Ending inventory

Question 7

Which method is used where the items carried in inventory are not fungible?

A) Perpetual inventory
B) Periodic inventory
C) Specific identification method
D) None of these

Question 8

Any cost that does not flow to the income statement by way of a cascade of inventory accounts is recognized in the period incurred and is thus called a 'product cost'.

Question 9

Which of the following statements is not correct?

A) Contract in progress can legitimately represent large amounts.
B) Contract in progress measures the amount of resources consumed in realizing all or part of a long-term contract but for which no invoicing has been issued to the customer.
C) As soon as an invoice is issued,all corresponding resources are carried,as depreciation expense,to the income statement.
D) If invoicing on contract takes place,for example,every four months,up to the cost of four months of production may be listed under contract in progress.

Question 10

What is (are)the main reason(s)for not using LIFO?

A) Inflation is very limited today in developed economies and there is often simultaneously inflation and deflation on different products or resources thus the reporting benefit of LIFO might not be significant.
B) With even a small inflation,the LIFO-based taxable income would be less than it would be under FIFO or WAC and,if there is deflation,LIFO might create larger swings in taxable income levels than would WAC or FIFO.
C) LIFO in periods of heavy inflation may lead to a negative valuation of an inventory that is physically real,thus giving less credibility to the balance sheet.
D) All of these

Question 11

Given the above data,what is the amount of the ending inventory under LIFO?

A) 60
B) 50
C) 55
D) 65

Question 12

Given the above data,what is the amount of the ending inventory under FIFO?

A) 60
B) 50
C) 55
D) 65

Question 13

Which of the following types of inventories is not common in a manufacturing activity?

A) Raw materials
B) Merchandise
C) Semi finished goods
D) Work in progress

Question 14

According to IAS 2,what should the cost of inventories comprise?

A) Costs of purchase
B) Costs of conversion
C) Costs incurred in bringing the inventories to their present condition and location
D) All of the previous costs

Question 15

To a manager whose responsibility it is to allocate resources in order to manage a product and customer portfolios,the most important element is the value of:

A) The cost of goods sold.
B) The inventory.
C) The provision for depreciation of inventories.
D) None of these.

Question 16

Which of the following statements is correct?

A) The periodic inventory system provides superior managerial information and internal control.
B) The perpetual inventory system is simpler and less expensive than the periodic inventory system.
C) Profit and inventory values are the same under the perpetual inventory system and the periodic inventory system,as long as the basic data do not show any inflation or deflation.
D) The perpetual inventory system is only used in small companies.

Question 17

What is the rule,which requires a business to realign the books when it finds itself in a situation where the book value of inventory is greater than its market value?

A) The rule of 'lower of cost or market'
B) The rule of market to book
C) The rule of 'higher of cost or market'
D) None of these

Question 18

Work in progress measures the value of the resources attached to items that are still left in the process of production on the closing date.

Question 19

Which of the following procedures does not exist for the valuation of inventory outflows?

A) First-In,First-Out (FIFO)
B) Weighted average cost method (WAC)
C) First-In,Last-Out (FILO)
D) Specific identification method

Question 20

In a periodic inventory system,the fundamental inventory equation is: Beginning inventory + Purchases or additions - Consumption = Ending inventory.What is the unknown in this equation?

A) Beginning inventory
B) Purchases or additions
C) Consumption
D) Ending inventory

Question 21

According to IAS 2,which of the following pieces of information should be given in the notes of the financial statements?

A) Accounting policies adopted in measuring inventories,including the cost formula used.
B) Circumstances or events that led to the reversal of a write-down of inventories.
C) Carrying amount of inventories pledged as security for liabilities.
D) All of these