Inventories

Question 1

Information to consider when buying inventories

Answer 1

-Nature of product

-Types of storage

-Customers’ preference

Question 2

Nature of product

Answer 2

-Refers to a feature, attribute, or quality of the product

Question 3

Types of storage

Answer 3

-Different goods may require special types of storage

Question 4

Customers’ preference

Answer 4

Customers’ preferences are the motivations and behaviours which influence the customers’ purchasing decisions

Question 5

What theory to account for lower NRV

Answer 5

According to the prudence theory, when the net realisable value falls below the cost of inventory, the business must reduce the value of inventory and record the potential loss as an impairment loss on inventory even though the inventory has not yet been sold. This is to ensure that profits and current assets are not overstated

Question 6

What is the First-In-First-Out (FIFO) method

Answer 6

Goods purchased first are assumed to be sold first and what is left in inventory are goods that are purchased last