Inventory

Question 1

Markdown Cancellations

Answer 1

Additions that do not increase price above original retail.

Question 2

FIFO (First In, First Out)

Answer 2

An assumption that goods are sold in the chronological order purchased. The ending inventory will consist of the last purchases made during the accounting period.

Question 3

Three Methods of Inventory Measurement

Answer 3

Periodic, Perpetual, and Gross Profit Method

Question 4

Additional Markups

Answer 4

Additions that raise selling price above original retail.

Question 5

Purchasing, Handling and Storage Costs

Answer 5

Should also be added to inventory cost, but because of the difficulty of association, are usually expensed as period costs

Question 6

Fair Value under IFRS.

Answer 6

Fair Value it is not an acceptable concept for inventory reporting under IFRS

Question 7

Finished Goods

Answer 7

Major Category of Inventory

Question 8

Net Markdowns

Answer 8

Markdowns minus markdown cancellations.

Question 9

Dollar Value LIFO

Answer 9

The dollar value LIFO inventory consists of a base and layers when the inventory has increased during the period. In dollar value, however, the inventory is expressed in terms of dollars instead of units.

Question 10

Use of “Discounts Lost” Account (Net Price Method)

Answer 10

Assumed the discount will be taken and the amount originally recorded in purchases and accounts payable is net of the discount.

Question 11

Raw Materials (Major Category of Inventory)

Answer 11

Materials on hand not yet placed into production

Question 12

IFRS Major Difference in Inventory Accounting

Answer 12

IFRS #2 does not allow the use of the LIFO method for inventory valuation.

Question 13

Markup Cancellations

Answer 13

Deductions that do not decrease price below original retail.

Question 14

Inventory Valuation Methods

Answer 14

Specific IdentificationAverage Costs (Weighted Average Periodic, Weighted Average Perpetual)FIFOLIFO

Question 15

The primary basis of accounting for inventories

Answer 15

Cost, which is the price paid plus the direct or indirect cost of bringing the article to its existing condition or location.

Question 16

FIFO Cost Retail Method

Answer 16

The beginning inventory is excluded from the cost to retail ratio calculation. The cost ratio is then applied to the ending inventory at retail to obtain the cost of the ending inventory.

Question 17

Original Retail

Answer 17

Price at which goods first offered for sale.

Question 18

Transportation Costs

Answer 18

Should be added to inventory cost.

Question 19

Work in process (Major Category of Inventory)

Answer 19

Direct material, labor and overhead cost of unfinished units.

Question 20

As used in the phrase “lower of cost or market”, the term market means _____>

Answer 20

current replacement cost

Question 21

Net Markups

Answer 21

Additional markups minus markup cancellations.

Question 22

LIFO (Last In, First Out)

Answer 22

The last goods purchased are assumed to be sold. The ending inventory consists of the goods first purchased.

Question 23

Cash Discounts Adjustment to Inventory Cost

Answer 23

Should be treated as a reduction of the cost of purchases.

Question 24

Merchandise (Major Category of Inventory)

Answer 24

Items purchased for resale.

Question 25

Markdowns

Answer 25

Deductions that lower price below original retail.

Question 26

Biological assets which include agricultural inventories

Answer 26

An exception to the IFRS lower of cost or market procedures. Biological inventories are reported at first value less cost to sell at the point of harvest.

Question 27

Trade Discounts or Quantity Discounts.

Answer 27

Discounts from a catalog or list price, used to establish a pricing policy and, therefore, do not enter into the accounting system.

Question 28

Major objective of inventory accounting

Answer 28

Proper income measurement through the process of matching costs against revenues.

Question 29

Average Cost Retail Method

Answer 29

For a retail cost method both net markups and net markdowns are included in the cost to retail ratio.

Question 30

Retail Method of Inventory

Answer 30

An inventory method in which records are maintained at cost and retail. The method is used to maintain accountability and control of inventory assigned to retail units.

Question 31

Use of “Discounts” Account (Gross Price Method)

Answer 31

If this method is used, discounts are deducted from purchases.

Question 32

Supplies (Major Category of Inventory)

Answer 32

Manufacturing supplies only, others are prepaid expenses.

Question 33

Lower Cost of Market under IFRS

Answer 33

Major difference is tha tIFRS defines “market” as net realizable value (ceiling).