Inventories

Question 1

Accounting standard for inventories

Answer 1

PAS 2

Question 2

Nature of inventories

Answer 2

Held for sale in the ordinary course of business
In the process of production for such sale
In the form of materials or supplies to be consumed in the production process or in the rendering of services

Question 3

Also known as FOB origin or FOB seller

Owned by the buyer

Title of ownership transfers upon the goods leaving the seller’s location

Answer 3

FOB shipping point

Question 4

Owned by the seller

Title of ownership transfers when the goods reach the buyer’s location

FOB buyer

Answer 4

FOB destination

Question 5

Effect of purchases on inventory

Answer 5

Increase

Question 6

Effect of purchase returns on inventory

Answer 6

Decrease

Question 7

Effect: Received from consignors

Answer 7

No effect

Question 8

Effect: Transferred to consignees

Answer 8

No effect

Question 9

Effect: Sales

Answer 9

Decrease

Question 10

Effect: Sales received from consignors

Answer 10

No effect

Question 11

Sales - consignees

Answer 11

Decrease

Question 12

Effect: Sales returns in good condition

Answer 12

Increase

Question 13

Effect: Sales returns - unsalable

Answer 13

No effect

Question 14

Information is available at the end of each period after the entity has conducted physical count of the goods

Answer 14

Periodic system

Question 15

Information is readily available from the perpetual records, which is automatically updated for transaction affecting inventories

Answer 15

Perpetual system

Question 16

Recognition of inventories

Answer 16

Must result in relevant and faithful representation of the information about inventories

Question 17

Measurement of inventories

Answer 17

Lower of cost and net realizable value (NRV)

Question 18

What comprises cost of inventories?

Answer 18

Costs of purchase
Costs of conversion
Other costs incurred in bringing the inventories to their present location and condition

Question 19

Costs incurred to convert materials into finished goods

Answer 19

Costs of conversion

Question 20

Indirect costs of production that remain relatively constant regardless of the volume of production

Answer 20

Fixed production overhead

Question 21

Indirect costs of production that vary directly, or nearly directly, with the volume of production

Answer 21

Variable production overheads

Question 22

Three cost formulas

Answer 22

Specific identification
FIFO
Weighted average

Question 23

Specific costs are attributed to identified inventory

Answer 23

Specific identification

Question 24

Items of inventory that were purchased or produced first are sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced

Answer 24

FIFO

Question 25

The cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period.

Answer 25

Weighted average

Question 26

Formula of specific identification

Answer 26

Units on hand x specific unit cost

Question 27

Formula of FIFO

Answer 27

Units on hand x unit cost of latest purchases

Question 28

Formula of weighted average

Answer 28

Units on hand x weighted average unit cost (WAUC)

WAUC = Total cost of goods available for sale / Total units available for sale

Question 29

Estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale

Answer 29

NRV

Question 30

Deduction from the list price given by the seller to the buyer

Answer 30

Trade discount

Question 31

Deduction from the invoice price given by the seller to thebuyer

Answer 31

Cash discount