Class 7 - Inventory

Question 1

T or F: Manufacturing companies and retail companies report inventory in different ways?

Answer 1

True - typically; Retail simply reports Inventory. Whilst Manufacturing companies record:

• Raw Materials
• Work-in-Progress
• Finished Goods

Question 2

Typically what expenses are “cost of manufacturing overhead”

Answer 2

Supervisor Salaries, Utilities, Depreciation, Insurance for Manufacturing facilities

Question 3

T or F: can salaries of a CEO or other headquarter staff be expensed.

Answer 3

False - Overhead costs of “head quarters” cannot be capitalised into the inventory production.

Question 4

T or F: typically it is assumed a company receives an inventory and pays for it later?

Answer 4

True - it is balanced by recording an Account Payable

Question 5

Under which GAAP system is LIFO prohibited?

Answer 5

International GAAP

Question 6

T or F: Leverage Analysis should considered what cost flow assumptions a company chooses to adopt.

Answer 6

True - this is reflected in the Current Ratio. FIFO will yield a higher ratio, than LIFO. This may skew the apparent ability to meet debt obligations.

Question 7

True or False - an inventory can be impaired?

Answer 7

True

Question 8

What is the impairment criteria for Inventory?

Answer 8

The Net Realisable Value (NRV) is less than the cost base of the inventory.

Question 9

What is the NRV for an Inventory?

Answer 9

NRV(Inventory) = Selling Price in Ordinary Course of Business - the cost to sell

Question 10

True of False - typically when an Inventory is impaired it is included within the COGS?

Answer 10

True - generally this is the case. If the impairment is not material.