Inventories - PAS2 PDF

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Problem 18-1 Multiple choice (PAS 2) 1. Which statement is incorrect regarding LCNRV? 1. Inventories shall be measured at a. Net realizable is the selling price less estimated cost to complete and estimated cost ofdisposal. b. In most situations, entities price inventory on a total inventory basis. ...

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Problem 18-1 Multiple choice (PAS 2)

1. Which statement is incorrect regarding LCNRV?

1. Inventories shall be measured at

a. Net realizable is the selling price less estimated cost to complete and estimated cost ofdisposal. b. In most situations, entities price inventory on a total inventory basis. c. One of the methods may be used to record the income effect of valuing inventory at net realizable value. d. Entities use an allowance account, the “allowance to reduce inventory to net realizable value.”

a. Cost b. Net realizable c. Lower of cost and net realizable value d. Lower of cost and market Answer : c. Lower of cost and net realizable value

2. The cost of inventories shall be measured using a. FIFO b. Average method c. LIFO d. Either FIFO or average method Answer : d. Either FIFO or average method

Answer :b. In most situations, entities price inventory on a total inventory basis.

2. Which of the following statements is true regarding inventory writedown and reversal of writedown?

3. Net realizable value is a. Current replacement cost b. Estimated selling price c. Estimated selling price less estimated cost to complete d. Estimated selling price less estimated cost to complete and estimated cost of disposal Answer : d. Estimated selling price less estimated cost to complete and estimated cost of disposal

a. Reversal of inventory writedown is prohibited. b. Separate reporting of reversal of inventory writedown is required. c. Entities are required to record writedown in a separate loss account. d. All of the choices are correct. Answer :b. Separate reporting of reversal of inventory writedown is required.

3. LCNRV of inventory 4. Inventories are usually written down to net realizable value

a. Is always either the net realizable value or cost.

a. Item by item b. By classification c. By total d. By segment Answer : a. Item by item

b. Should always be equal to net realizable value. c. May sometimes be less than the net realizable value. d. Should always be equal to the estimated selling price less cost to complete.

5. The amount of any writedown of inventory to net realizable value and all losses of inventory should be

Answer :a. Is always either the net realizable value or cost.

a. Recognized as operating expense in the period the writedown or loss occurs. b. Recognized as other expense in the period the writedown or loss occurs. c. Recognized as component of cost of sales in the period the writedown or ] loss occurs. d. Deferred until the related inventory is sold.

4. Lower of cost and net realizable value

Answer : c. Recognized as component of cost of sales in the period the writedownor loss occurs.

Problem 18-2 Multiple Choice (IAA)

a. Gives the lowest valuation if applied to the total inventory. b. Gives the lowest valuation if applied to major group of inventory. c. Gives the lowest valuation if applied to individual item of inventory. d. Must be applied to major group. Answer :c. Gives the lowest valuation if applied to individual item of inventory.

5. Which of the following is not an acceptable method of applying the LCNRV? a. Inventory location b. Group Inventory c. Individual Item d. Total of the inventory Answer :a. Inventory location

10. When the cost of goods sold method is used to record inventory at net realizable value

6. Reporting inventory at the lower of cost and net realizable value is a departure from

a. There is a direct reduction in the selling price.

a. Historical cost b. Consistency c. Conservatism d. Full disclosure Answer :a. Historical cost 7. When inventory declines in value below original cost, what is the maximum amount that the inventory can be valued at? a. Sales price b. Net realizable value c. Historical cost d. Sales price reduced by estimated cost of disposal Answer :b. Net realizable value 8. Lower of cost and net realizable value as it applies to inventory is best described as the a. Reporting of a loss when there is decrease in the future utility below the original cost. b. Method of determining cost of goods sold. c. Assumption to determine inventory flow. d. Change in inventory value to net realizable value. Answer : a. Reporting of a loss when there is decrease in the future utility below theoriginal cost.

b. A loss is recorded directly in the inventory account by debiting loss. c. Only the portion of the loss attributable to inventory sold is recorded. d. The net realizable value for ending inventory is substituted for cost and the loss is buried in cost of goods sold. Answer : d. The net realizable value for ending inventory is substituted for cost and the loss is buried in cost of goods sold.

Problem 18-3 Multiple Choice (IAA) 1. How should sales staff commission be dealt with when valuing inventory at LCNRV? a. Added to cost b. Ignored c. Deducted in arriving at net realizable value d. Deducted from cost Answer :c. Deducted in arriving at net realizable value 2. How should trade discounts be dealt with when valuing inventory at LCNRV? a. Added to cost b. Ignored c. Deducted in arriving at net realizable value d. Deducted in arriving at cost Answer :d. Deducted in arriving at cost

9. Which method may be used to record a loss due to a price decline in the value o inventory? a. Loss method b. Sales method c. Cost of goods sold method d. Loss method and cost of goods sold method Answer :d. Loss method and cost of goods sold method

3. How should prompt payment discount be dealt with when valuing inventory at LCNRV? a. Added to cost b. Ignored c. Deducted in arriving at net realizable value d. Deducted from cost Answer :b. Ignored 4. How should import duties be dealt with when valuing inventory at LCNRV?

a. Added to cost b. Ignored c. Deducted in arriving at net realizable value d. Deducted from cost Answer: a. Added to cost 5. Inventory should be measured at

4. An example of an inventory accounting policy that should be disclosed is a. Effect of inventory profit caused by inflation. b. Classification of inventory into raw materials, goods in process, and finished goods. c. Identification of major suppliers. d. Method used for inventory costing

a. Lower of cost and fair value b. Lower of cost and net realizable value c. Lower of cost and net selling price d. All of these are used in measuring inventory

Answer :d. Method used for inventory costing Problem 18-5 Multiple Choice (IAA)

Answer : b. Lower of cost and net realizable 1. Commodities of broker-traders are measured at

value

Problem 18-4 Multiple Choice (IAA) 1. The credit balance that arises when a loss on a purchase commitment is recognized should be a. Presented as a current liability b. Subtracted from ending inventory c. Presented as component of other comprehensive income d. Presented in the income statement Answer :a. Presented as a current liability 2. If a material amount of inventory has been ordered through a formal purchase contract atthe end of reporting period for future delivery at firm prices a. This fact must be disclosed. b. Disclosure is required only if prices have declined since the date of order. c. Disclosure is required only if prices have risen substantially. d. An appropriation of retained earnings is necessary. Answer :a. This fact must be disclosed. 3. When a portion of inventory has been pledged as security for a loan a. The value of the inventory pledged should be deducted from the debt. b. An equal amount of retained earnings should be appropriated. c. The fact should be disclosed but the amount of current assets should not be affected. d. The cost of the pledged inventory should be transferred from current asset to noncurrent asset. Answer :c. The fact should be disclosed but the amount of current assets should notbe affected.

a. Fair value b. Fair value less cost of disposal c. Cost d. Current replacement cost Answer : b. Fair value less cost of disposal 2. Commodity broker-traders a. Produce commodities such as rice, corn, or precious metals. b. Hold inventory primarily to sell in the near term and generate a profit from pricefluctuation. c.Measure inventories at the lower of cost and net realizable value. d. All of the choices are correct regarding brokertraders Answer : b. Hold inventory primarily to sell in the near term and generate a profit from price fluctuation.

3. Net realizable value is the general rule for valuing which inventory? a. Commodities held by broker-traders b. Computer components held for sale c. Inventories priced on an item by item basis d. All of these inventories are measured at net realizable value Answer :a. Commodities held by brokertraders 4. Net realizable value is used to measure which inventory? a. Agricultural Inventory b. Minerals c. Commodities held by broker-traders d. All of these are measured at net realizable value

Answer. d. All of these are measured at net realizable value

Answer: b. Fair value less cost of disposal at the point of harvest 5.Agricultural produce is

5. Which of the following financial attributed would not be used to measure inventory? a. Historical cost b. Current replacement cost c. Net realizable value d. Present value at future cash flows Answer: d. Present value at future cash flows

a.The harvested product from biological asset b.Valued at the time of harvest at the cost of production c.Valued at each reporting period at fair value less cost of disposal d.All of the choices are correct regarding agricultural product Answer: a. The biological asset

harvested product from

Problem 19-1 Multiple choice 1. Biological assets a. Are found only in Biotech entities b. Are living animals or living plants and must disclosed as a separate line item inthe statement of financial position c. Must be measured at cost d. Do not generally have future economic benefits Answer: b. Are living animals or living plants and must disclosed as a separate line item in the statement of financial position

2. It is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce into additional biological asset.

6.Agricultural activity results in which of the following type of asset? a.Biological asset only b.Agricultural produce only c.Both biological asset

and

agricultural

produce d.Neither biological asset nor agricultural produce Answer: c. agricultural produce

Both

biological

asset

and

7.Agricultural activity includes all of the following, except a.Raising livestock b.Perennial cropping c.Aquaculture d.Ocean fishing Answer: d. Ocean fishing

a.Agricultural activity b.Biological activity c.Economic activity d.Development activity Answer: a. Agricultural activity

3.Biological assets are measured at a.Cost b.Lower of cost and net realizable value c.Net realizable value d.Fair value less cost to disposal Answer: d. Fair value less cost to disposal

4.Agricultural produce is measured at a.Fair value b.Fair value less cost of disposal at the point of harvest c.Net realizable value d.Net realizable value less normal profit margin

8.Biological transformation results from asset changes through all of the following, except a.Growth b.Degeneration c.Procreation d. Production of agricultural produce Answer: d. Production of agricultural produce 9.It is a market in which transactions for the asset or liability take place with sufficient regularity and volume to provide pricing information on an going basis. a.Active market b.Principal market c.Global market d.Financial market Answer: a. Active market

10.Which of the following should not be considered

cost of disposal? a.Commission to broker and dealer b.Levy by regulatory agency c.Transfer tax d.Transport cost Answer: d.Transport cost

Problem 19-2 Multiple choice 1.Generally speaking, biological assets relating to agricultural activity shall be measure using a.Historical cost b.Historical less depreciation less impairment c.A fair value approach d.Net realizable value Answer: c. A fair value approach 2.An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income shall be accounted for in which of the following? a.No income shall be reported annually until first harvest and sale in 30 years b.Income shall be measured annually and reported using a fair value approach that recognizes and measures biological growth c.The eventual sale proceeds shall be estimated and matched to the profit and loss account over the 30-year period. d.The plantation forest shall be measured every 5 years and the increase in value shall be shown in the statement of comprehensive income Answer: b. Income shall be measured annually and reported using a fair value approach that recognizes and measures biological growth 3.Which of the following statements is true regarding agricultural produce? a.In all cases, an entity shall measure agricultural produce at fair value less cost of disposal at the point harvest. b.The prevailing view is that the fair value of agricultural produce at the point of harvest can always be measured reliably c.The fair value measurement of agricultural produce stops at the time of harvest d.All of these statements are true regarding agricultural produce. Answer: d. All of these statements are true

regarding agricultural produce.

4.What is the measurement basis for valuing biological assets and agricultural produce? a.Historical cost b.Current cost c.Present value d.Fair value Answer: d. Fair value

5.Where the fair value of the biological asset cannot be determined reliably, the biological asset shall measured at a.Cost b.Cost less accumulated depreciation c.Cost less accumulated depreciation and accumulated impairment loss d.Net realizable value Answer: c. Cost less accumulated depreciation and accumulated impairment loss

6.Which of the following is unlikely to be in fair value measurement? a.Quoted price of an identical asset in an active market b.Quoted price of a similar asset in an active market c.The present value of the expected net cash flows from the asset d.External independent valuation Answer: d. External independent valuation 7.A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less cost disposal of a biological asset shall be included in a.Profit or loss for the period b.Other comprehensive income c.A separate revaluation reserve d.An appropriation reserve Answer: a. Profit or loss for the period

8.Where there is a long aging or mutation process after harvest, the accounting for such products shall be dealt with by a.PAS 41, Agriculture

b.PAS 2, Inventories c.PAS 16, Property, plant and equipment d.PAS 40, Investment property

2.Land that is related to agricultural activity is measured

Answer: b. PAS 2, Inventories

9.Which of the following information shall be disclosed in relation to agricultural activity? a.Separate disclosure of the gain or loss relating to biological asset and agricultural produce b.The aggregate gain or loss arising on the initial recognition of biological asset and agricultural produce and from the change in fair value less cost disposal of biological asset c.The total gain or loss from biological asset, agricultural produce, and from changes in fair value less cost of disposal of biological asset d.There is no requirement to disclose separately any gain or loss

Answer: b. The aggregate gain or loss arising on the initial recognition of biological asset and agricultural produce and from the change in fair value less cost disposal of biological asset 10.When agricultural produce is harvested, the harvest shall be accounted for as “inventory”. For the purpose, cost at the date of harvest is deemed to be a.The fair value less cost of disposal at the point of harvest. b.The historical cost c.The historical cost less accumulated impairment losses d.Market value Answer: a. The fair value less cost of disposal at the point of harvest. Problem 19-3 Multiple choice

a.At fair value b.In accordance with IAS 16, Property, Plant and Equipment, or IAS 40, Investment Property c.At fair value in combination with biological asset that is being grown on the land d.At the resale value separate from the biological asset that is being grown on the land Answer: b. In accordance with IAS 16, Property, Plant and Equipment, or IAS 40, Investment Property

3.Anunconditional government grant related to a biological asset that has been measured at fair value less cost of disposal shall be recognized as a.Income when the grant becomes receivable b.A deferred credit when the grant becomes receivable c.Income when the grant application has been submitted d. A deferred credit when the grant has been approved Answer: a. Income when the grant becomes receivable

4.If a government grant related to biological asset is conditional, the grant shall be recognized as a.Income when the conditions attaching to the grant are met b.Income when the grant has been approved c.A deferred credit when the conditions attached to the grant are met d.A deferred credit when the grant is approved Answer: a Income when the conditions attaching to the grant are met

1.Which of the following is not dealt with by IAS 41? a.The accounting for biological asset b.The initial measurement of agricultural produce harvested from the entity’s biological asset c.The processing of agricultural produce after harvesting d.The accounting treatment of government grant received in respect of biological asset

5.Where there is a production cycle of more than one year for a biological asset, IAS 41 encourages separate disclosure of the a.Physical change only b.Price change only c.Total change in value d.Physical change and price change Answer: d. Physical change and price change

Answer: c. The processing of agricultural produce after harvesting

6.All of the following criteria must be satisfied before a biological asset can be recognized in an entity’s financial statements, except a.The entity controls the asset as a result of past event b.It is probable that future economic benefits relating to the asset will flow to the entity c.An active market for the asset exists d.The fair value or cost of the asset can be measured reliably

Problem 20-1 Multiple choice 1. Which will not require an estimate of inventory? a. Inventory destroyed by typhoon b. Proof of the reasonable accuracy of the physical inventory c. Interim financial statements are prepared d. Determination of the ending inventory to be reported in the statement of financial position at year-end

Answer: c. An active market for the asset exists Answer: c. Interim financial statements are prepared 7.All of the following would be classified as biological asset, except 2. How is the gross profit method used as it relates to inventory valuation?

a.Dairy cattle b.Chickens c.Eggs d.Trees

a. To verify the accuracy of the perpetual inventory record. b. To verify the accuracy of the physical inventory. c. To estimate cost of goods sold. d. To provide an inventory value under FIFO

Answer: c. Eggs

8.All of the following agricultural produce?

would

be

classified

as

a. Tree b.Bush c.Butter d.Apple Answer: d. Apple 9.Animals related to recreational activities, for example, game parks and zoos, including the natural breeding of animals in zoos, shall be accounted for what under what standard? a.IAS 41 – Agriculture b.IAS 16 – Property, plant and equipment c.IAS 41 – Investment Pro...