Inventory - Test Bank | 9e

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Chapter 07 Testbank

1. Reversal of a previous inventory write-down is not advocated in AASB 102 Inventories.

True   False

2. Where there is a reversal of a previous inventory write-down, the entry would involve a debit to the inventory account and a credit to an income account labelled ‘Reversal of previous inventory write-down’ or its equivalent.

True   False

3. In the reversal of previous inventory write-downs, if in a subsequent period information becomes available which indicates that inventory previously written down to net realisable value has subsequently increased in value, it is permissible to reverse the previous write-down.

True   False

4. Where there is a reversal of a previous inventory write-down, the entry would involve a credit to the inventory account and a debit to an income account labelled ‘Reversal of previous inventory write-down’ or its equivalent.

True   False

5. Where the information is material, paragraph 36 of AASB 102 requires that the financial statements disclose information on the accounting policies adopted for measuring inventories, including the cost formulas used.

True   False

6. To which of the following does AASB 102 Inventories not apply?

A. financial instruments

B. biological assets related to agricultural activity and agricultural produce at the point of harvest

C. inventories held by commodity broker–traders who measure their inventories at fair value less costs to sell

D. All of the given options are correct.

7. The standard AASB 102 Inventories does not apply to:

A. finished goods held in the warehouse

B. assets held for sale in the ordinary course of business

C. agricultural produce after harvest, and mineral and mineral products, to the extent that they are measured at net realisable value

D. materials or supplies to be consumed in the production process or in the rendering of services

8. According to AASB 102 Inventories, an inventory includes:

A. finished goods

B. raw materials and stores

C. work in progress

D. All of the given options are correct.

9. Which of the following statements is correct in relation to the costing of inventories?

A. Direct costing treats fixed production costs as an expense of the period and is not permitted as a method for valuing inventories under AASB 102.

B. Absorption costing treats fixed production costs as a product cost, allocating them to the goods produced, and is not permitted as a method for valuing inventories under AASB 102.

C. Absorption costing treats fixed production costs as an expense of the period and is the required method for valuing inventories under AASB 102.

D. Direct costing treats fixed production costs as a product cost, allocating them to the goods produced, and is not permitted as a method of valuing inventory under AASB 102.

10. Standard costs are able to be used under AASB 102 where:

A. they have been properly set and maintained.

B. they are realistically attainable and are reviewed regularly.

C. they are assessed to be a sound basis for the purpose of inventory valuation.

D. they are revised in the light of current conditions as necessary.

11. The periodic inventory system operates by:

A. keeping track of inventory as it comes into the organisation and as it leaves

B. counting inventory at regular intervals to establish how much of each item is on hand

C. assuming that the inventory that came in first is the first to be sold

D. All of the given options are correct.

12. Rectangle Ltd manufactures cardboard boxes for a variety of purposes. The following information relates to the production of extra-large packing boxes used by removalists for the period ended 30 June 2022.

The company uses a perpetual inventory system. The net realisable value per extra-large cardboard box is $3.15 at the end of the period. What are the costs of goods sold and the value of ending inventory for Rectangle Ltd assuming the LIFO cost-flow assumption is used?

A. cost of sales: $3460.40; ending inventory: $380.00

B. cost of sales: $3453.90; ending inventory: $393.75

C. cost of sales: $3459.41; ending inventory: $380.99

D. cost of sales: $3453.90; ending inventory: $386.50

13. AASB 102 requires that inventories be reinstated to the extent that the new carrying amount does not:

A. exceed the net realisable value in the previous period.

B. exceed the lower of the original cost.

C. exceed the net realisable value in the current period.

D. exceed the lower of the original cost or the net realisable value in the current period.

14. Weighted-average cost will generate results that are:

A. higher value than LIFO

B. higher value than FIFO

C. in between LIFO and FIFO

D. higher value than LIFO and FIFO

15. Under the perpetual system, a difference with the stocktake records might indicate:

A. damaged stock

B. theft of stock

C. obsolete stock

D. All of the given options are correct.

16. Inventory, which is also sometimes known as ________________, accounts for a significant proportion of total assets as reported within the balance sheet.

A. cost of goods

B. a financial instrument

C. stock or merchandise

D. goodwill

17. Inventories are defined in paragraph 6 of AASB 102 as assets:

A. held for sale in the ordinary course of business

B. in the process of production for such sale

C. in the form of materials or supplies to be consumed in the production process or in the rendering of services

D. All of the given options are correct.

18. Where there is a reversal of a previous inventory write-down, the entry would involve a _______to the inventory account and a ___________to an income account labelled ‘Reversal of previous inventory write-down’ or its equivalent.

A. debit; credit

B. credit; debit

C. deletion; creation

D. None of the given options are correct.

19. AASB 102 requires financial statements to disclose the carrying amount of inventories ________ as securities for liabilities.

A. pledged

B. sold

C. write-down

D. reported

20. The managers of a profit-seeking organisation would always hope that the net realisable value of inventory would ______ cost.

A. remain below

B. be above

C. match the

D. be included in the

21. The net realisable value might drop below cost for a number of reasons. One of these reasons is the inventory might have become technologically_________.

A. advanced

B. obsolete

C. up to date

D. relevant

22. Depending on the circumstances, any of the following may be qualifying assets EXCEPT:

A. inventories

B. manufacturing plants

C. power generation facilities

D. non-investment properties

23. The amount of any reversal of any write-down that is recognised as a reduction in the amount of inventories recognised as an expense in the period also needs to be disclosed in the financial statement, as per _____________.

A. AASB 102

B. AASB 123

C. AASB 132

D. AASB 141

24. Which among the following methods assigns costs on the assumption that the inventory quantities on hand represent those last purchased or produced?

A. Weighted-average cost

B. Last-in, first-out

C. First-in, first-out

D. Specific identification

25. Which of the following methods of accounting for inventory is also known as the continuous method, where a running total is kept of the units on hand by recording all increases and decreases in inventory as they occur?

A. Perpetual inventory system

B. Periodic inventory system

C. First-in, first-out system

D. Last-in, first-out system

26. Cost of goods sold = Opening inventory + Purchases – Purchase returns (if any) – _________.

A. Closing inventory

B. Cash

C. Freight costs

D. Discount for early payment

27. Under the ______________, records of inventory are constantly updated as sales, purchases and returns are made.

A. periodic inventory system

B. perpetual inventory system

C. purchase inventory system

D. sales inventory system

28. Where the information is material, paragraph 36 of AASB 102 requires that the financial statements disclose the following information EXCEPT for:

A. the accounting policies adopted for measuring inventories, including the cost formulas used

B. the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity

C. the carrying amount of inventories carried at fair value less costs to sell

D. the amount of inventories recognised as an expense during past periods

29. In some cases the inventory previously written down to its net realisable value increases in value. Explain the accounting treatment of such cases.

______________________________________________________________________________

30. For financial reporting purposes, what are inventories?

______________________________________________________________________________

31. Why do we need to know about the meaning of inventory?

______________________________________________________________________________

32. What is meant by fixed cost?

______________________________________________________________________________

33. What is absorption costing?

______________________________________________________________________________

34. What is meant by the first-in, first-out (FIFO) cost-flow method?

______________________________________________________________________________

35. Briefly discuss reversal of previous inventory write-downs.

______________________________________________________________________________

36. Where the information is material, paragraph 36 of AASB 102 requires that the financial statements disclose certain information. List any two of them.

______________________________________________________________________________

37. Reflect briefly on the amount of any reversal of write-down of inventories as per AASB 102. Discuss.

______________________________________________________________________________

Chapter 07 Testbank