PAS 2 Inventories

Question 1

Which of the following should not be taken into account when determining the cost of inventory?

a. Storage costs of part-finished goods
b. Trade discounts
c. Recoverable purchase taxes
d. Import duties on shipping of inventory inward

Answer 1

c. Recoverable purchase taxes

Question 2

The cost of inventory does not include

a. Compensation of factory staff.
b. Storage cost is necessary in the production process before a further production stage.
c. Abnormal amount of wasted material.
d. Irrecoverable purchase tax.

Answer 2

c. Abnormal amount of wasted material.

Question 3

Which of the following costs of conversion cannot be included in the cost of inventory?

a. Cost of direct labor
b. Factory rent and utilities
c. Salaries of sales staff
d. Factory overhead based on normal capacity

Answer 3

c. Salaries of sales staff

Question 4

Which of the following should be taken into account when determining the cost of inventory?

a. Storage cost of part-finished goods
b. Abnormal freight in
c. Recoverable purchase tax
d. Interest on inventory loan

Answer 4

a. Storage cost of part-finished goods

Question 5

Costs incurred in bringing the inventory to the present location and condition include

a. Cost of designing products for specific customers
b. Abnormal amount of wasted material
c. Storage cost is not necessary in the production process before a further production stage
d. Distribution cost

Answer 5

a. Cost of designing products for specific customers

Question 6

Inventories encompass all of the following, except

a. Merchandise purchased by a retailer
b. Land and other property not held for sale
c. Finished goods produced
d. Materials and supplies for use in production

Answer 6

b. Land and other property not held for sale

Question 7

A property developer must classify properties that it holds for sale in the ordinary course of business as

a. Inventory
b. Property, plant and equipment
c. Financial asset
d. Investment property

Answer 7

a. Inventory

Question 8

Factory supplies to be consumed in the production process are reported as

a. Inventory
b. Property, plant and equipment
c. Investment property
d. Intangible asset

Answer 8

a. Inventory

Question 9

Which of the following should not be reported as inventory?

a. Land acquired for resale by a real estate firm
b. Shares and bonds held for resale by a brokerage firm
c. Partialy completed goods held by a manufacturing entity
d. Machinery acquired by a manufacturing entity

Answer 9

d. Machinery acquired by a manufacturing entity

Question 10

When determining the cost of an inventory, which of the following should not be included?

a. Interest on loan obtained to purchase the inventory
b. Commission paid when inventory is purchased
c. Labor cost of the inventory when manufactured
d. Depreciation of plant equipment used in manufacturing

Answer 10

a. Interest on loan obtained to purchase the inventory

Question 11

Theoretically, cash discounts permitted should be

a. Added to other income, whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from inventory, only if taken

Answer 11

c. Deducted from inventory, whether taken or not

Question 12

Which of the following generally would not be separately accounted for in the computation of cost of goods sold?

a. Trade discounts applicable to purchases
b. Cash discounts taken
c. Purchase returns and allowances
d. Cost of transportation for merchandise purchased

Answer 12

a. Trade discounts applicable to purchase

Question 13

The use of purchase discount account implies that the recorded cost of a purchased inventory is

a. Invoice price
b. Invoice price plus any purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether taken or not

Answer 13

a. Invoice price

Question 14

The use of a discount lost account implies that cost of a purchased inventory is

a. Invoice price
b. List price
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether or not taken

Answer 14

d. Invoice price less the purchase discount allowable whether or not taken

Question 15

The valuation of inventory on a prime cost basis

a. Would achieve the same results as direct costing
b. Would exclude all overhead from inventory cost
c. Is always achieved when standard costing is adopted
d. Is always achieved when the FIFO is adopted

Answer 15

b. Would exclude all overhead from inventory cost

Question 16

Which term represents the deduction from the invoice price of purchased goods granted for early payment?

a. Sales discount
b. Purchase discount
c. Trade discount
d. Purchase return and allowance

Answer 16

b. Purchase discount

Question 17

A discount given to a customer for purchasing a large volume of merchandise is typically referred to as

a. Trade discount
b. Quantity discount
c. Size discount
d. Cash discount

Answer 17

a. Trade discount

Question 18

The purchase is recorded as a credit to accounts payable

a. As if the discount is to be taken, if using the gross method
b. Without regard for the discount, if using the net method
c. As if the discount is to be taken, if using the net method
d. As if the discount is to be taken, using either the gross or net method

Answer 18

c. As if the discount is to be taken, if using the net method

Question 19

When recording accounts payable, a purchase discount is recorded

a. If using the net method
b. If using the gross method, but only if the payment is made during the discount period
c. If using the net method, provided the payment is made during the discount period
d. If using the gross method, but the purchase discount is reduced by any purchase discount lost

Answer 19

b. If using the gross method, but only if the payment is made during the discount period

Question 20

Using the gross method, purchase discount lost is

a. Included in purchases
b. Added to accounts payable
c. Included in interest expense
d. Deducted from interest income

Answer 20

a. Included in purchases

Question 21

Why is inventory included in the computation of net income?

a. To determine the cost of goods sold
b. To determine sales revenue
c. To determine merchandise returns
d. Inventory is not included in the computation of net income

Answer 21

a. To determine the cost of goods sold

Question 22

Which of the following is a characteristic of a perpetual inventory system?

a. Inventory purchases are debited to a purchases account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less the change in inventory.

Answer 22

c. Cost of goods sold is recorded with each sale.

Question 23

Which of the following is incorrect about the perpetual inventory method?

a. Purchases are recorded as debit to the inventory account.
b. The entry to record a sale includes a debit to cost of goods sold and a credit to inventory.
c. After a physical inventory count, inventory is credited for any missing inventory.
d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns.

Answer 23

d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns.

Question 24

An entry debiting inventory and crediting cost of goods sold would be made when

a. Merchandise is sold using the periodic system.
b. Merchandise is sold using the perpetual system.
c. Merchandise is returned using the perpetual system.
d. Merchandise is returned using the periodic system.

Answer 24

c. Merchandise is returned using the perpetual system.

Question 25

In a periodic system, the beginning inventory is

a. Net purchases minus cost of goods sold
b. Net purchases minus ending inventory
c. Total goods available for sale minus net purchases
d. Total goods available for sale minus cost of goods sold

Answer 25

c. Total goods available for sale minus net purchases

Question 26

Which is not acceptable for valuation of inventory?

a. Historical cost
b. Current replacement cost
c. Prime cost
d. Estimated selling price less cost of disposal

Answer 26

c. Prime cost

Question 27

Entities must allocate the cost of all goods available for sale between

a. The cost goods on hand at the beginning and the cost of goods purchased during the period.
b. The cost of goods on hand at the end and the cost of goods purchased during the period.
c. The income statement and the statement of financial position.
d. The cost of goods on hand at the beginning and the cost of goods sold during the period.

Answer 27

c. The income statement and the statement of financial position.

Question 28

An exception to the general rule that costs should be charged to expense in the period incurred is

a. Factory overhead cost incurred on a product manufactured but not sold during the current period.
b. Interest cost for financing of inventory.
c. General and administrative overhead.
d. Sales commission.

Answer 28

a. Factory overhead cost incurred on a product manufactured but not sold during the current period.

Question 29

What is consigned inventory?

a. Goods shipped and title transfers to the consignee.
b. Goods sold but payment is not required until the goods are sold.
c. Goods shipped but title remains with the consignor.
d. Goods segregated for shipment to a customer.

Answer 29

c. Goods shipped but title remains with the consignor.

Question 30

Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are

a. Expense on the part of the consignor
b. Expense on the part of the consignee
c. Inventoriable by the consignor
d. Inventoriable by the consignee

Answer 30

c. Inventoriable by the consignor