Ch 7 Inventories IAS2

Question 1

What is the basic rule for Inventories?

Answer 1

Inventories should be stated at the
LOWER OF COST & NET REALISABLE VALUE (NRV)
on an item by item basis.

Question 2

What 3 types costs should be included for Inventories?

Answer 2

Cost of purchase e.g. Direct/Raw Materials.

Cost of conversion e.g. Manufacturing/Production costs to finish - (normal wasted materials can be inc).

Cost in bringing to present location & condition e.g. Import Duties, Carriage Inwards & Freight Costs.

Question 3

What 4 x costs should be excluded for Inventories?

Answer 3

• Abnormal Waste
• Storage Costs
• Admin OH
• Selling Costs

Question 4

What is NET REALISABLE VALUE?

Answer 4

Estimated selling price in the ordinary course of business
LESS
Estimated costs required to complete & sell them.

Question 5

What are the 3 methods in identifying inventories costs?

Answer 5

1) Unit Cost
2) Weighted Average
3) First in First Out

Question 6

What is the DOUBLE ENTRY for:

1) Purchases during the year
2) Year end adjustment for Closing Inventory

Answer 6

Purchases during the year
DR Purchases - Expense X ^
CR Cash/Payables - Asset X v

Yr end adj for closing inventory
DR Closing Inventory (SOFP) - Asset ^
CR Closing Inventory (SPL) - Expense v(reducing COS)

Question 7

Where is Inventories on the SOFP?

Answer 7

SOFP

NCA’s

CA’s
INVENTORIES
Trade Receivables
Less: Allowance for doubtful debts

Prepayments
Bank
Cash in hand

Question 8

Where is Inventories on the SPL?

Answer 8

SPL

Revenue

Less: COS
Inventory @cost (op inv) X
Add: Purchase or goods X
Less: Inventory @cost (clos inv) (X)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Gross Profit X