Ch. 10 - quiz Flashcards
According to IAS 2, subsequent to their initial recognition inventories are measured at the lower of cost and net realizable value. The net realizable value is the net amount that an entity expects to realize from the sale of the inventory in the ordinary course of business.
True or False
True
IAS 2 allows the use of cost formulas for inventory items that are held in large quantities. More specifically, IAS 2 allows either the last-in, first-out (LIFO) or the weighted average cost formula. The FIFO method is not allowed.
True or False
False
With rising prices (inflation), the application of FIFO will normally lead to higher inventory values than the application of LIFO.
True or False
True
With rising prices (inflation), the application of FIFO will normally lead to higher cost of goods sold in the income statement than the application of LIFO.
True or False
False
Which of the following are NOT inventories?
A. commercial properties of a property trader
B. taxi licences of a taxi license trader
C. lubricants that are consumed by the machinery in producing goods
D. a building to earn rentals
D
According to IAS 2 inventories must be measured at…
A. cost
B. the lower of cost and fair value less costs of disposal
C. the lower of cost and estimated selling price less costs to complete
D. the lower of cost and estimated selling price less costs to complete and less costs to sell
D
The cost of inventories in accordance with IAS 2 does not include…
A. salaries of factory employees
B. storage costs necessary in the production process before a further stage
C. abnormal amounts of wasted materials
D. borrowing costs
C
Which cost formulas may a company use in measuring its
inventory?
A. Weighted average cost and LIFO (last-in, first-out)
B. FIFO (first-in, first-out) and LIFO
C. Weighted average cost and FIFO
D. HIFO (highest-in, first-out) and LIFO
C
Which statement best describes the retail method as a technique for the measurement of cost in accordance with IAS 2 ?
A. The retail method takes into account normal levels of materials and supplies, labour, efficiency and capacity utilisation.
B. The retail method is often used for measuring inventories of small numbers of rapidly changing items with different margins for which it is impracticable to use other costing methods.
C. According to the retail method, the cost of inventory is determined by increasing the costs of conversion of the inventory by the appropriate percentage gross margin.
D. According to the retail method, the cost of inventory is determined by reducing the sales price of the inventory by the appropriate percentage gross margin.
D
A retailer buys a good priced at € 500 per unit. The supplier awards the retailer a 20% discount on orders of 100 units or more. When the retailer has purchased 1,000 or more units in a calendar year, the supplier awards a further volume discount of 10% of the list price. The additional volume discount applies to all units acquired by the retailer during the calendar year.
On 1 January 2013 the retailer buys 1,000 units in a single order. In accordance with IAS 2 the retailer measures the cost of inventory at …
A. € 500,000
B. € 400,000
C. € 350,000
D. € 320,000
C
A company has 100 purses in its inventory. For each purse the historical cost is € 65, the replacement cost is € 45, the estimated selling price is € 60
and the estimated costs to sell is €5.
What is the value of the purse inventory?
A. € 6,500
B. € 6,000
C. € 5,500
D. € 4,500
C
