Inventory

Question 1

How do we recognise inventory? (3)

Answer 1

• Initial recognition
• Subsequent measurement
• De-recognition

Question 2

What is inventory? (3)

Answer 2

1. Inventory is an asset which a business buys to held for sale in the normal course of business
2. Use in the production of assets for sale in the normal course of business
3. used in the process of performing a service a service that is sold during the normal activities of the business

Question 3

Classification depends on the __________ of the business.

Answer 3

intention

Question 4

How do we measure inventory when it is first bought?

Answer 4

It is initially measured at cost.

Question 5

What does cost include? (2)

Answer 5

1. Cash consideration
2. Credit payment :
   - within normal credit terms
   - Deferred payment

Question 6

What does the cost of inventory include?

Answer 6

” For the cost of inventory we include all costs incurred to get the inventory to present condition and location where it is ready to be sold”

Question 7

What do we base the recognition of inventory on? (2)

Answer 7

1. Definition criteria

2. Recognition criteria

Question 8

What is it called when a business gives a customer a “discount” for bulk purchases?

Answer 8

A trade discount

Question 9

True or false, trade discounts are recorded in the general ledger or as journal entries

Answer 9

False

Question 10

What appears on the purchase invoice?

Answer 10

The new purchase price (after trade discount has been deducted) appears on the purchase invoice

Question 11

What is the cost to the business of the trade discount?

Answer 11

The business totals the net cost of all trade discounts