5. accting for inventory 2

Question 1

2 systems for stocktakes?

Answer 1

periodic and perpetual

Question 2

periodic inventory system necesary to determine?

Answer 2

• Necessary to determine ending inventory and cost of sales

Question 3

perpetual used to and identify?

Answer 3

• Used to verify accounting records

* Identifies loss, theft or deterioration

Question 4

transfer of ownership:

Answer 4

– EXW (freight paid by buyer)

– DDP (freight paid by seller)

Question 5

determining cost of inventory on hand:

goods on consignment?

Answer 5

– Agreement where ‘agent’ sells goods on behalf of

owner for a commission

Question 6

cost of inventory includes/excludes:

Answer 6

– Includes all direct and indirect costs • Purchase costs
• Conversion costs • Other costs
– Excludes wastage, storage, administration etc.

Question 7

Four methods of inventory cost assignment

Answer 7

– Specific identification
– First-in, first-out (FIFO)
– Last-in, First-out (LIFO)
– Averaging method
• Weighted average (periodic method)
• Moving average (perpetual method)

Question 8

FIFO method is based on the

Answer 8

assumption that the cost of the first units acquired is the cost of the first units sold

Question 9

LIFO method is based on the

Answer 9

assumption that the cost of the last units acquired is the cost of the first units sold

Question 10

The weighted average method calculates

Answer 10

an average cost per unit and uses this to cost the ending inventory

Question 11

Specific ID consistent with and offers room for?

Answer 11

– Consistent with the actual movement of the inventory

– Offers room for manipulating profit

Question 12

FIFO reflects and does not permit?

Answer 12

– Reflects current prices in ending inventory

– Does not permit manipulation of profit

Question 13

LIFO results in:

Answer 13

– Results in matching current COS with current revenue
– Balance sheet values become out-dated
– Profits can be manipulated

Question 14

Weighted Average results in and tends to

Answer 14

– Results in identical items being assigned the same value

– Tends to smooth out profit and inventory values

Question 15

how to decide which method to select?

Answer 15

– Entity should choose based on a range of factors
– Ideally specific identification
– LIFO not allowed under the accounting standards

Question 16

entity when deciding which method needs to be?

Answer 16

– Need to be consistent

– Must use the same accounting methods and procedures from period to period

Question 17

Costing methods in the perpetual inventory system

Answer 17

• Inventory record maintained for each item of inventory
• Inventory control account maintained in the general ledger
• Inventory records collectively constitute the inventory subsidiary ledger
• Provides continuous record of transactions

Question 18

When the periodic and perpetual systems are compared

Specific ID and FIFO:

Answer 18

Specific Identification and FIFO methods will give the same cost of sales and ending inventory under each system

Question 19

When the periodic and perpetual systems are compared

LIFO and average cost methods:

Answer 19

LIFO and average cost methods will give different cost of sales and ending inventory figures under each system - pattern of movement
• Timing of calculation of COS

Question 20

The lower of cost and net realizable value rule is?

Answer 20

Accounting standards require inventories to be valued at the lower of cost and net realisable value

Question 21

what is net realisable value?

Answer 21

is the estimated selling price in the normal course of business less the estimated costs of sale.

Question 22

Presentation in financial statements

Answer 22

AASB 102 Inventories
– Disclose suitable subclassifications (relevant to
activities)
– Valuation basis must also be disclosed for each

Question 23

GST collected:

GST is collected by entities that:

Answer 23

• are registered for GST

* when they make taxable supplies in the course of their “enterprise” (generally, a business).

Question 24

GST collected: GST is collected by a business on its sales is…

Answer 24

remitted to the ATO.

Question 25

GST collected: The amount of GST on a taxable supply is:

Answer 25

10% of the value or GST exclusive price or

• 1/11th of the GST inclusive price.

Question 26

GST collected: GST-free supply:

Answer 26

• No GST is collected on GST free sales.

* GST paid by a business on its purchases is credited by the ATO.

Question 27

GST collected:

Input taxed supply

Answer 27

No GST is collected on input taxed sales.

• GST paid by a business on its purchases is NOT credited by the ATO.

Question 28

No GST on supply:

GST free supplies include:

Answer 28

• basic food (not processed food)
• health goods and health services
• educational material and services
• child care services
• goods exported from Australia
• supplies of transport services to or from Australia
• supplies by inwards duty-free shops
• supplies of a going concern

Question 29

No GST on supply:

Input taxed supplies include the following:

Answer 29

• financial supplies such as making loans, dealing in money and issuing securities
• the supply of residential (not commercial) premises for residential rent eg, renting a flat to a tenant
• the sale, or supply under a long-term lease (generally for at least 50 years), of existing residential premises (not if they are new)

Question 30

Understanding GST paid:

GST paid by a business on its purchases is

Answer 30

credited back by the ATO as an input tax credit.

Question 31

Understanding GST paid: A business is entitled to an

Answer 31

input tax credit for their creditable acquisitions.

Question 32

Understanding GST paid: A thing is acquired for a “creditable purpose” if

Answer 32

it is acquired in carrying on the taxpayer’s enterprise.

Question 33

Understanding GST paid:

The amount of the input tax credit is

Answer 33

the amount of GST paid on the thing acquired – so no credit if GST-free or input taxed.

Question 34

Understanding GST paid:

Generally, the amount of the input tax credit =

Answer 34

GST inclusive price x 1/11.

Question 35

Understanding GST paid: An input tax credit cannot be claimed unless

Answer 35

the taxpayer holds a complying tax invoice.

Question 36

when does the net amount of GST must be calculated?

Answer 36

When a GST registered business lodges a Business Activity Statement (BAS),

Question 37

net amount of GST payable by or refundable to a taxpayer =

Answer 37

GST payable on supplies made - input tax credits claimable

Question 38

who bears cost of GST?

Answer 38

gst may be paid o taxable supplies at each stage in commercial chain. however, it is final consumer, no first purchaser, who bears cost of GST

Question 39

is GST not a tax on business income?

Answer 39

Yes, GST is value added tax, it means tax is levied on value added by busines at each stage in production and distribution chain. GST not tax on business income