Question 1

The essence of the perpetual method of accounting for inventory is:

Accepted Answer

The perpetual method of accounting for inventory involves keeping detailed inventory records that track all movements in each item of stock. This allows for real-time recording of cost of sales, as well as more accurate and efficient inventory management. While a stocktake may still be performed, it is not the essence of the perpetual method. The perpetual method may or may not produce a higher gross profit than the periodic method, as it depends on the specific circumstances and accuracy of the records. Cost of sales is not calculated at the end of the accounting period, but rather continuously updated throughout the period.

Question 2

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is true?

Accepted Answer

In the moving average method of costing inventories used with the perpetual inventory system, a new average cost is calculated after each purchase. This is because the average cost is based on the total cost of goods available for sale divided by the total units available for sale, and this changes each time there is a new purchase. The cost of goods sold is then calculated using the most recent average cost, which reflects the cost of the most recent purchases.

Question 3

The essence of the perpetual method of accounting for inventory is:

Accepted Answer

The perpetual method of accounting for inventory involves tracking all movements in each item of stock through detailed inventory records, rather than relying on periodic stocktake. This allows for a more accurate and up-to-date calculation of cost of sales. The method is not limited to high value, low volume items.

Question 4

With the perpetual method of accounting for inventory, the costing assumption, such as first-in first-out, is applied to:

Accepted Answer

With the perpetual method of accounting for inventory, the costing assumption, such as first-in first-out, is applied to each sale via stock cards or computer records. This allows for real-time tracking of inventory costs and provides accurate cost of goods sold information for each sale.

Question 5

The average cost of AD computer modems on 30 March, as per the stock card, is $21.06. If 200 modems are sold at $24.00 each, what is the cost of the modems charged to the income statement, assuming the weighted average method of costing is used?

Accepted Answer

We can calculate the weighted average cost per unit using the following formula:

Weighted average cost per unit = Total cost of inventory / Total number of units

Total cost of inventory = Average cost per unit * Number of units in beginning inventory 
+ Cost of units purchased during the period

= $21.06 * (200 - 0) + $24.00 * 200 
= $4212.00

Therefore, the cost of the modems charged to the income statement is $4212.

Question 6

Montreal Furniture uses a periodic inventory system. During an accounting year many purchases and sales of goods occur. For Montreal, the balance in the general ledger inventory account:

Accepted Answer

In a periodic inventory system, the balance in the general ledger inventory account remains constant throughout the accounting period and is only updated when a physical inventory count is conducted, typically at the end of the accounting period.

Question 7

Which statement concerning the perpetual inventory method is incorrect?

Accepted Answer

The perpetual inventory method does not require a stocktake to estimate cost of sales. Cost of sales is calculated for each transaction through the continuous record of inventory movements.

Question 8

Which statement relating to the determination of the cost of inventory in a computerised system is not true?

Accepted Answer

Computerised inventory systems can use either the periodic inventory system or the perpetual inventory system. The choice of inventory system depends on the type of business and its inventory needs.

Question 9

How many of these are advantages of the weighted average method of applying costs to inventory?
$\bullet$It is not subject to profit manipulation.
$\bullet$The profit and closing inventory values tend to be 'smoothed' compared to other methods.
$\bullet$It is simple to understand.

Accepted Answer

The weighted average method of applying costs to inventory is not subject to profit manipulation, tends to smooth profit and closing inventory values, and is simple to understand, making all three statements advantages of this method.

Question 10

Assuming rising prices, which statement is correct?

Accepted Answer

In a period of rising prices, the FIFO (First In, First Out) method reports a lower cost of sales because it assigns the cost of the oldest inventory items to the cost of goods sold. This means that the cost of sales reflects lower historical prices rather than the higher recent prices. Consequently, FIFO typically results in a higher reported profit and a higher value of closing inventory compared to methods like LIFO (Last In, First Out), where the cost of sales reflects more recent and higher prices.

Question 11

Which statement is correct?

Accepted Answer

LIFO stands for 'last in, first out', which means that the last items purchased are assumed to be the first items sold.

Question 12

If inventory costs are declining, profit will be highest if the inventory method used is:

Accepted Answer

When inventory costs are declining, the LIFO (Last-In, First-Out) inventory method will result in the highest profit. This is because LIFO assumes that the most recently purchased inventory is sold first, which means that the cost of goods sold will be higher in periods when inventory costs are declining. This will result in a lower net income and, therefore, a higher profit.

Question 13

Which statement concerning inventory is not true?

Accepted Answer

The statement "Consistency rules out ever switching to an alternative accounting method" is not true. While consistency is important for comparability, a company may need to switch to a new accounting method for valid reasons such as changes in the nature of the business or new accounting standards. However, any such change should be disclosed and explained in a company's financial statements.

Question 14

Identify the statement relating to the lower of cost and net realisable value rule that is untrue.

Accepted Answer

The lower of cost and net realisable value rule ensures that inventory is written down to its estimated selling price if it falls below its cost. As such, it results in probable losses being recorded in the period when they are first noticed rather than when the sale occurs, which is in line with the principle of prudence. The rule is applied separately to each item of inventory or to groups of inventory. However, applying the rule typically results in a lower gross profit being reported in the period when it is used, as the cost of goods sold is increased due to the write-down of inventory.

Question 15

Under IAS 2/AASB 102 the costing method that is not permitted is:

Accepted Answer

LIFO (Last-In, First-Out) is not permitted under IAS 2/AASB 102 as it does not reflect the true value of inventory and can result in older inventory being valued at current prices. The other three methods - weighted/moving average, FIFO (First-In, First-Out), and specific identification - are permitted under this accounting standard.

Question 16

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is untrue?

Accepted Answer

A new average cost is calculated after each purchase, not after each sale. The moving average cost method recalculates the average cost of inventory after each purchase or purchase return, not after sales.

Question 17

Accepted Answer

The answer of 
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Question 18

A way that products can be unequivocally identified is by the use of:

Accepted Answer

Bar codes provide a unique and standardized way of identifying products, and are commonly used in retail and supply chain operations. Ledger and invoice numbers may be unique within a particular organization, but are not standardized across industries or companies. Photos may be used for identification purposes, but do not provide a standardized format for product identification.

Question 19

With the perpetual method of accounting for inventory the first-in first-out assumption is applied to:

Accepted Answer

With the perpetual method of accounting, the first-in first-out assumption is applied to each sale via stock cards or computer records. This means that the cost of the oldest inventory is matched against the revenue earned from the sale of the inventory, allowing for a more accurate cost of goods sold calculation.

Question 20

If inventory prices are rising the method of inventory valuation that gives the highest profit and the highest ending inventory is:

Accepted Answer

Under FIFO, the oldest inventory items are sold first which means that the cost of goods sold reflects the lowest prices of the inventory items. This results in higher profits when prices are rising, as the cost of goods sold will be lower, and also leads to a higher ending inventory valuation as the more expensive inventory items are still on hand.

Quiz 19: Inventories

The essence of the perpetual method of accounting for inventory is:

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is true?

The essence of the perpetual method of accounting for inventory is:

With the perpetual method of accounting for inventory, the costing assumption, such as first-in first-out, is applied to:

The average cost of AD computer modems on 30 March, as per the stock card, is $21.06. If 200 modems are sold at $24.00 each, what is the cost of the modems charged to the income statement, assuming the weighted average method of costing is used?

Montreal Furniture uses a periodic inventory system. During an accounting year many purchases and sales of goods occur. For Montreal, the balance in the general ledger inventory account:

Which statement concerning the perpetual inventory method is incorrect?

Which statement relating to the determination of the cost of inventory in a computerised system is not true?

How many of these are advantages of the weighted average method of applying costs to inventory? $\bullet$ It is not subject to profit manipulation. $\bullet$ The profit and closing inventory values tend to be 'smoothed' compared to other methods. $\bullet$ It is simple to understand.

Assuming rising prices, which statement is correct?

Which statement is correct?

If inventory costs are declining, profit will be highest if the inventory method used is:

Which statement concerning inventory is not true?

Identify the statement relating to the lower of cost and net realisable value rule that is untrue.

Under IAS 2/AASB 102 the costing method that is not permitted is:

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is untrue?

A way that products can be unequivocally identified is by the use of:

With the perpetual method of accounting for inventory the first-in first-out assumption is applied to:

If inventory prices are rising the method of inventory valuation that gives the highest profit and the highest ending inventory is:

Quiz 19: Inventories

The essence of the perpetual method of accounting for inventory is:

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is true?

The essence of the perpetual method of accounting for inventory is:

With the perpetual method of accounting for inventory, the costing assumption, such as first-in first-out, is applied to:

The average cost of AD computer modems on 30 March, as per the stock card, is $21.06. If 200 modems are sold at $24.00 each, what is the cost of the modems charged to the income statement, assuming the weighted average method of costing is used?

Montreal Furniture uses a periodic inventory system. During an accounting year many purchases and sales of goods occur. For Montreal, the balance in the general ledger inventory account:

Which statement concerning the perpetual inventory method is incorrect?

Which statement relating to the determination of the cost of inventory in a computerised system is not true?

How many of these are advantages of the weighted average method of applying costs to inventory? ∙\bullet∙ It is not subject to profit manipulation. ∙\bullet∙ The profit and closing inventory values tend to be 'smoothed' compared to other methods. ∙\bullet∙ It is simple to understand.

Assuming rising prices, which statement is correct?

Which statement is correct?

If inventory costs are declining, profit will be highest if the inventory method used is:

Which statement concerning inventory is not true?

Identify the statement relating to the lower of cost and net realisable value rule that is untrue.

Under IAS 2/AASB 102 the costing method that is not permitted is:

Which statement relating to the moving average method of costing inventories, used with the perpetual inventory system, is untrue?

A way that products can be unequivocally identified is by the use of:

With the perpetual method of accounting for inventory the first-in first-out assumption is applied to:

If inventory prices are rising the method of inventory valuation that gives the highest profit and the highest ending inventory is:

How many of these are advantages of the weighted average method of applying costs to inventory? $\bullet$ It is not subject to profit manipulation. $\bullet$ The profit and closing inventory values tend to be 'smoothed' compared to other methods. $\bullet$ It is simple to understand.