Cost Of Sales & Inventories - 30%

Question 1

What is the formula for cost of sales

Answer 1

Opening inventory value + purchases ( or production costs) - closing inventory value

Question 2

What is carriage inwards

Answer 2

The cost paid by purchaser of having goods transported into his business

The added cost of purchases

Question 3

Carriage outwards

Answer 3

Cost to the seller, paid by the seller of having goods transported out to the customer

This is a selling and distribution expense

Question 4

What is the double entry for purchases during the year

Answer 4

Debit purchases (SPL)
Credit cash or payables ( SOFP)

Question 5

What is the double entry for entires at the end of the year: closing inventory adjustments

Answer 5

Debit closing inventory (SOFP)

Credit closing inventory ( SPL)

Question 6

What is an inventory count

Answer 6

This is when you go into the warehouse and manually count how much inventory is there

Question 7

What is a continuous inventory record ?

Answer 7

This is when a business keeps a detailed record of inventory coming in and going out so they do not have to count everything on the last day of the year

Question 8

What should inventory be valued at ?

Answer 8

The lower of cost and the net realisable value

Question 9

What is included in the cost of an item of inventory ?

Answer 9

• cost of purchase including delivery
• the manufacturing costs that are needed to convert direct materials into final products: direct labor costs and manufacturing overhead costs
• other costs to bring inventory to its present location and condition

Question 10

What is the net realisable value ?

Answer 10

The net selling proceeds after the deduction of any completion costs

Question 11

How do you calculate the net realisable value ?

Answer 11

Estimated selling price - estimated cost of completion - estimated selling and distribution costs

Question 12

What are the three methods of valuing inventory

Answer 12

• first in first out - FIFO
• Average cost
• Last in first out - LIFO

Question 13

What are the two types of average costs ?

Answer 13

Simple average

Weighted average

Question 14

How to calculate the simple average cost

Answer 14

Cost of all purchases/ production divided by the number of units purchased

Question 15

Which costing method is not permitted in to be used in finacial accounts according to IAS 2 ?

Answer 15

Last in first out - LIFO

Question 16

Which costing method will result in high inventory values and higher profits ?

Answer 16

First in first out - FIFO

Question 17

What is the double entry for drawings good put into the business buy the proprietor ( the owner of the business)

Answer 17

Debit drawings ( SOFP )
Credit Bank ( SOFP )

Question 18

What is the double entry for goods taken out of the business by the Proprietor ( the owner of the business )

Answer 18

DEBIT drawings ( SOFP )
Credit Purchases ( SPL)

Question 19

What are drawing of goods valued at ?

Answer 19

At the cost price NOT the sales price