IAS 2: Inventories

Question 1

IAS 2 Applies to all inventories except

Answer 1

(1) Work In Progress arising under construction contracts, (2) Financial Instruments, (3) Biological Assets (agricultural activity) and Agricultural Produce at the point of harvest

Question 2

IAS 2 does not apply to the measurement of inventories held by

Answer 2

(1) Agricultural, Forest, Minerals and (2) Commodity broker-traders who measure their inventories at FV less costs to sell

Question 3

Inventories are:

Answer 3

(1) held for sale in the ordinary course of business (2) in the process of production for such sale (3) in the form of materials/supplies to be consumed in the production process/rendering of services

Question 4

Net Realisable Value

Answer 4

Estimated selling price in the ordinary course of business - (Estimated costs of completion + Estimated Costs necessary to make the sale)

Question 5

Fair Value

Answer 5

Amount for which an asset could be exchanged/liability settled between knowledgeable willing parties in an arm’s length transaction

Question 6

T/F: Inventories encompass goods purchased and held for resale

Answer 6

True.

Question 7

T/F: In case of a service provider, inventories do not include the costs of the service

Answer 7

False. Inventories for service providers include the costs of service

Question 8

Inventories shall be measured at the lower of

Answer 8

cost and net realisable value

Question 9

Cost of Inventories

Answer 9

Costs of (1) purchase, (2), conversion, (3) and other costs incurred in bringing the inventories to their present location and condition

Question 10

Costs of Purchase comprise:

Answer 10

(1) Purchase Price, (2) Import Duties, (3) Transport Costs. Trade discounts, rebates, and other similar items are deducted.

Question 11

Costs of Conversion include:

Answer 11

(1) Direct Labour (costs directly related to the units of production) (2) Fixed (constant regardless of the volume of production: depreciation and maintenance of factory buildings and equipment, cost of factory management and admin) and Variable (vary directly with the volume of production: indirect materials, indirect labour) Production Overheads

Question 12

Cists excluded from the Cost of Inventories and Recognized as Expenses in the period incurred:

Answer 12

(1) Abnormal amounts of wasted materials, labour, or other production costs; (2) Storage Costs unless necessary in the production process before a further production stage; (3) Admin Overheads that do not contribute to bringing inventories to their present location and condition; and (4) Selling Costs

Question 13

T/F: Borrowing Costs may be sometimes included in the cost of inventories

Answer 13

True. IAS 23 identifies these limited circumstances

Question 14

When inventories are purchased on deferred settlements terms and the arrangement effectively contains a financing element (such as a difference between the purchase price for normal credit terms and the amount paid), the element is ___

Answer 14

recognized as interest expense over the period of financing

Question 15

Cost of Agricultural Produce Harvested from Biological Assets

Answer 15

Agricultural produce that an entity has harvested from its biological assets are measured on initial recognition at their FV less costs to sell at the point of harvest.

Question 16

Cost of Inventories of items that aren’t ordinarily interchangeable and goods/services produced and segregated for specific projects shall be assigned by using ______

Answer 16

Specific Identification of their Individual Costs

Question 17

T/F: A difference in geographical location of inventories (or in the respective tax rules) is sufficient to justify the use of different cost formulas

Answer 17

False. The difference in geographical location is not enough. An example could be inventories that are used in different operating segments and have different uses in their respective operating segments

Question 18

T/F: Writing inventories down below cost to net realizable value is consistent with the view that assets should not be carried in excess of amounts expected to be realized from their sale or use

Answer 18

True.

Question 19

T/F: Inventories are not usually written down to net realizable value item by item.

Answer 19

False. Inventories are usually written down to net realizable value item by item

Question 20

T/F: It is appropriate to write inventories down on the bases of a calssifaction of inventory, for example, finished goods/all inventories in a particular operating segment

Answer 20

False. This is not appropriate.

Question 21

If sales contracts are for less than the inventory quantities held, the net realizable value of the excess quantities is based on

Answer 21

General selling prices

Question 22

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

Answer 22

False. These Materials and other supplies are NOT written down below cost

Question 23

When inventories are sold, the carrying amount of those inventories shall be recognized as a/an _____

Answer 23

Expense in the period in which the related revenue is recognized (CGS)

Question 24

Any write-down of inventories to net realizable value and all losses of inventories shall be recognized as a/an

Answer 24

Expense in the period the write-down or loss occurs.

Question 25

Reversal of any write-down of inventories, arising from an increase in net realizable value, shall be recognized as a

Answer 25

Reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs

Question 26

Disclosure. Financial statements shall disclose:

Answer 26

(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; (3) Carrying Amount of Inventories carried at FV less costs to sell; (4) Amount of Inventories recognized as an expense during the period (aka Cost of Sales); (5) Write-down of Inventories recognized as an expense in the period; (6) Amount of any reversal of write-down recognized as a reduction in the amount of inventories recognized as expense in the period; (7) Circumstances/Events that caused reversal of write-down; and (8) Carrying Amount of Inventories pledged as Security for Liabilities

Question 27

Common classifications of inventories:

Answer 27

Merchandise, Production Supplies, Materials, Work in Progress, Finished Goods

Question 28

I/S by nature: The entity discloses ____

Answer 28

(1) The costs recognized as an expense for raw materials and consumables, (2) labour costs, and other costs together with (3) the amount of the net change in Inventories for the Period