F4 - Inventories

Question 1

When are goods shipped FOB Shipping Point considered property of the buyer?

Answer 1

When the seller puts them on the truck

Question 2

How is “lower of cost or market” defined under IFRS?

Answer 2

Lower of cost or NRV (selling price - costs to complete)

Question 3

A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory and net income in the year of the change?

Answer 3

A decrease in both ending inventory and net income

Question 4

Estimates of price-level changes for specific inventories are required for which inventory method?

Answer 4

Dollar value LIFO

Question 5

How should inventory be treated when there is a decline in the fair market value and there is a purchase contract intact?

Answer 5

1) Describe the nature of the contract in a note to the financial statements
2) Recognize a loss in the income statement
3) Recognize a liability for the accrued loss

Question 6

How does understated inventory affect the retained earnings account?

Answer 6

An understatement of ending inventory results in an overstatement of cost of goods sold, which results in an understatement of net income and retained earnings

Question 7

T/F: When investment property is reported at cost less accumulated depreciation, fair value must be disclosed

Answer 7

True

Question 8

Under IFRS, revaluation can be performed on individual fixed assets only or on classes of assets

Answer 8

False; Under IFRS, if an individual fixed asset is revalued, then the entire class of fixed assets to which that asset belongs must be revalued; individual fixed assets cannot be revalued alone