Chapter 18 LCNRV

Question 1

NRV =

Answer 1

Estimated Selling Price in the ordinary course of business - Estimated Cost of Completion - Estimated Cost of Disposal

Question 2

The cost of inventories may not be recoverable if the inventories are ___, if they have become wholly/partially ___, if their selling pries have ____, or if the estimated cost of completion or the estimated cost of disposal has ____

Answer 2

damaged, obsolete, declined, increased

Question 3

The practice of writing inventories down below cost to net realizable value is consistent with the view that ________

Answer 3

assets shall not be carried in excess of amoutns expected to be realized from their sale or use

Question 4

Inventories are usually written down to NRV on an ____ bases

Answer 4

item by item or individual

Question 5

It is inappropriate to write down inventories based on a ____ of inventories. (Finished goods/Work in Progress(WIP)/Raw Materials/Inventories in a particular industry or geographical segment)

Answer 5

classifcation

Question 6

T/F: If the finished products in which the materials and other supplies held for use in production will be incorporated in are expected to be sold at or above cost, the said materials and other supplies are written down below cost.

Answer 6

False. If that’s the case, they aren’t written down below cost.

Question 7

T/F: When a decline in the price of materials indicates that the cost of the finished products > NRV, the materials are written down to NRV.

Answer 7

True.

Question 8

T/F: When a decline in the price of materials indicates that the cost of the finished products > NRV, the replacement cost of materials may be the best evidence of their NRV.

Answer 8

True.

Question 9

Is there an accounting problem if the cost

Answer 9

None. Because the inventory is stated at cost and the increase in value is not recognized.

Question 10

If the NRV

Answer 10

NRV

Question 11

The Direct Method is also known as ____ because any loss on inventory writedown is not accounted for separately but “buried” in the ____

Answer 11

cost of goods sold method, cost of goods sold

Question 12

Under the allowance method, the inventory is recorded at ___ and any loss on inventory writedown is accounted for ____

Answer 12

cost, separately

Question 13

The ___ method is also known as “loss method” because a loss account “loss on inventory writedown” is debited and a valuation account “_____” is credited.

Answer 13

Allowance, Allowance for inventory writedown

Question 14

In subsequent years, the “allowance for inventory writedown” account is adjusted upward or downward depending on the difference between the cost and NRV of the inventory at ____

Answer 14

year-end

Question 15

If the required allowance for inventory writedown increases, an additional ___ is recognized.

Answer 15

loss

Question 16

If the required allowance decreases a ____ is recorded. However, the ___ is limited only to the extent of the ____

Answer 16

gain on reversal of inventory writedown, gain, allowance balance

Question 17

Preferably the ___ method is used in order that the effects of writedown and reversal of writedown can be clearly identified.

Answer 17

allowance

Question 18

T/F: PAS 2, paragraph 36, requires disclosure of the amount of any inventory writedown and the amount of any reversal of inventory writedown.

Answer 18

True.

Question 19

The gain on reversal of inventory writedown is presented as a ____ from ____.

Answer 19

deduction, CGS

Question 20

The amount of inventory recognized as an expense in the period in which the reversal occurs is also known as

Answer 20

cost of goods sold

Question 21

T/F: The CGS in the direct and allowance method are different.

Answer 21

False. They must be the same.

Question 22

Wrt inventories, the financial statements shall disclose the following:

Answer 22

1. Accounting Policies adopted in measuring inventories, including the cost formula used, 2. Total Carrying Amount of inventories and the carrying amount in classifications appropriate to the entity (Merchandise, Production supplies, WIP, Finished Goods, etc.), 3. Carrying Amount of inventories carried at FVLCTS, 4. The amount of inventories recognized as an expense during the period, 5. The amount of any writedown of inventories recognized as an expense during the period, 6. The amount of reversal of writedown that is recognized as income, 7. The circumstances or events that led to reversal of a writedown of inventories, 8. The Carrying Amount of Inventories Pledged as Security for liabilities

Question 23

PAS 2, paragraph 4, provides that inventories of agricultural, forest, and mineral products are measured at ___ at certain stages of production

Answer 23

NRV

Question 24

Agricultural crops that have been harvested or mineral products that have been extracted are measured at NRV when ____ and ___

Answer 24

a sale is assured under a forward contract or gov’t guarantee, a homogeneous market exists and there is a negligible risk of failure to sell

Question 25

PAS 2, paragraph 3, provides that commodities of broker-traders are measured at ___

Answer 25

FVLCTS