Question 1

Assume that Darcy Industries had the following inventory values:Inventory cost (on December 31, 2014) = $500Inventory market (on December 31, 2014) = $450Inventory net realizable value (on December 31, 2014) = $440Inventory market (on June 30, 2015) = $520Inventory net realizable value (on June 30, 2015) = $525Under IFRS, what is the inventory carrying value on December 31, 2014?

Accepted Answer

Under IFRS, the inventory carrying value is determined by the lower of cost and net realizable value. Since the net realizable value on December 31, 2014 is $440 which is lower than the inventory cost and market value, the inventory carrying value is $440.

Question 2

Which of the following statements is true regarding IFRS and inventories?

Accepted Answer

IFRS defines the market value of inventories as the net realizable value, which is 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.

Question 3

Alonzo Company in Italy prepares its financial statements in accordance with IFRS. In 2014, it reported cost of goods sold of €600 million and average inventory of €100 million. What is Alonzo's inventory turnover ratio?

Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold / Average Inventory. For Alonzo Company, this is €600 million / €100 million = 6 times per year. To convert this into days, divide the number of days in a year (365) by the turnover ratio: 365 / 6 = 60.8 days.

Question 4

Assume that Darcy Industries had the following inventory values:Inventory cost (on December 31, 2014) = $500Inventory market (on December 31, 2014) = $450Inventory net realizable value (on December 31, 2014) = $440Inventory market (on June 30, 2015) = $520Inventory net realizable value (on June 30, 2015) = $525Under IFRS, what is the inventory carrying value on June 30, 2015?

Accepted Answer

The answer of Assume that Darcy Industries had the following...

Question 5

The following information relates to Moore Company's inventory:Cost of inventory = $460Selling price of inventory = $500Normal profit margin = 10% of selling priceCurrent replacement cost = $370Cost of completion and disposal = $50Under IFRS, which of the following would be the correct measurement value for the inventory?

Accepted Answer

Under IFRS, inventory is measured at the lower of cost and net realizable value (NRV). The cost of inventory is $460. The NRV is calculated as the selling price ($500) minus the cost of completion and disposal ($50), which equals $450. Since $450 (NRV) is lower than the cost ($460), the inventory should be measured at $450.

Question 6

All of the following are key differences between U.S. GAAP and IFRS with respect to accounting for inventories except the

Accepted Answer

The average costing method is allowed under both U.S. GAAP and IFRS, so it is not a key difference between the two. The other options listed are key differences in the accounting for inventories between U.S. GAAP and IFRS.

Question 7

Starfish Company (a company using U.S. GAAP and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?

Accepted Answer

IFRS and the FIFO inventory method generally result in higher net income during a period of inflation compared to U.S. GAAP and LIFO. This is because FIFO assumes that the inventory sold is the oldest inventory, which typically has a lower cost than more recently purchased inventory. Therefore, when prices are rising, using FIFO results in lower cost of goods sold, higher gross profit and higher net income. The other options are not necessarily affected by the change in inventory method and do not show a consistent trend during a period of inflation.

Question 8

State Company manufactured a machine at a cost of $80,000. The product is sold for $88,000 at a 5% discount. The delivery costs are estimated to be $8,000. Under IFRS, how much should be the carrying amount of this inventory?

Accepted Answer

Under IFRS, the carrying amount of inventory should include all costs incurred to bring the inventory to its present location and condition. This includes the cost of manufacture ($80,000) and any additional costs directly attributable to the production of the inventory (in this case, delivery costs of $8,000). The discount given to the customer is not relevant to the carrying amount of inventory. Therefore, the carrying amount of the inventory would be $80,000 + $8,000 = $88,000, less a provision for any impairment (if necessary). However, the answer choices do not include this exact amount, but the closest option to this amount is D, which is $75,600.

Quiz 9: Inventories: Additional Valuation Issues

Which of the following statements is true regarding IFRS and inventories?

Alonzo Company in Italy prepares its financial statements in accordance with IFRS. In 2014, it reported cost of goods sold of €600 million and average inventory of €100 million. What is Alonzo's inventory turnover ratio?

All of the following are key differences between U.S. GAAP and IFRS with respect to accounting for inventories except the

Starfish Company (a company using U.S. GAAP and LIFO inventory method) is considering changing to IFRS and the FIFO inventory method. How would a comparison of these methods affect Starfish's financials?

State Company manufactured a machine at a cost of $80,000. The product is sold for $88,000 at a 5% discount. The delivery costs are estimated to be $8,000. Under IFRS, how much should be the carrying amount of this inventory?