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Inventory

The document consists of multiple-choice questions related to accounting for inventories, covering topics such as IAS 2, measurement of inventories, allocation of overhead, and methods for estimating inventory values. It includes specific scenarios involving companies and calculations for inventory valuation under different methods. The questions also address issues like purchase discounts, retail inventory methods, and impairment losses due to inventory destruction.

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25 views3 pages

Inventory

The document consists of multiple-choice questions related to accounting for inventories, covering topics such as IAS 2, measurement of inventories, allocation of overhead, and methods for estimating inventory values. It includes specific scenarios involving companies and calculations for inventory valuation under different methods. The questions also address issues like purchase discounts, retail inventory methods, and impairment losses due to inventory destruction.

Uploaded by

baggayalthea
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1. IAS 2 inventories does not apply to which of the following?

a. Materials or supplies to be consumed in the production process or in the rendering of services


b. Merchandise purchased by a retailer and held for resale
c. Inventories held by commodity broker-traders who measure their inventories at fair value less costs to
sell
d. None of the above

2. Which of the following statements about the measurement of inventories is correct?


a. Net realizable value refers to the net amount that an entity expects to realize from the sale of inventory
in the ordinary course of business
b. Net realizable value for inventories may not equal fair value less costs to sell
c. The cost of inventories includes the storage costs necessary in the production process
d. All of these are correct

3. Which of the following statements about allocating overhead for inventories is not correct?
a. The allocation of fixed production overheads to the cost of conversion is based on the normal capacity of
the production facilities
b. The actual level of production may be used in allocating fixed production overhead if it approximates
normal capacity
c. The amount of fixed overhead allocated to each unit of production is increased as a consequence of low
production or idle
d. Unallocated overheads are recognized as expense in the period in which they are incurred

4. The use of purchase discounts account implies that the recorded cost of a purchased inventory item is
a. Invoice price
b. Invoice price plus any purchase discount taken]
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether taken or not

5. To determine the value of inventory using the retail inventory method-average, the computation of the
cost to retail percentage should
a. include markups but not markdowns c. include markdowns but not markups
b. include markups and markdowns d. exclude markups and markdowns

6. When agricultural produce is harvested, the harvest should be accounted as “inventory”. For this
purpose, the deemed cost of the inventory is the
a. Fair value less cost of disposal at the point of harvest
b. historical cost of the harvest
c. historical cost less impairment
d. market value

7. . Inventory records for TURKEY CORP. revealed the following:


March 1, 2015, inventory: 1,000 gallons P7.20 = P7,200
Purchases Sales
Mar. 10 600 gals @ P7.25 Mar. 5 400 gals
16 800 gals @ 7.30 14 700 gals
23 600 gals @ 7.35 20 500 gals
26 700 gals
Ending inventory assuming FIFO in a perpetual inventory system would be:
A. P4,960 C. P5,080
B. P5,060 D. P5,140

8. QATAR INC. sells merchandise with a term of 2/10, n/30 and uses the net method of recording sales and
receivables while purchases and accounts payables are recorded at gross amount.
On September 30, 2018, a fire at QATAR’s only warehouse caused severe damage to its entire inventory.
Based on recent history, QATAR has a gross profit of 30% of net sales. The following information is
available from QATAR’s records for the nine months ended September 30, 2018:
Inventory at 01/01/18 P 600,000
Total purchases received and recorded from January to date of fire 4,000,000
Total freight cost of goods purchased and received 80,000
Total credit memo received on goods purchased and received 250,000
Total discounts taken on purchases 90,000
Invoice received for goods purchased but still in transit
shipped on September 30, 2018, FOB shipping point (excluding the freight cost of P5,000) 150,000
Invoice purchased but still in transit, Free- Alongside
the Carrier, (excluding the freight and insurance cost of P15,000) 250,000
Total sales delivered and recorded from January to date of fire 3,724,000
Unrecorded sales invoice for goods delivered 392,000
Total sales returns accounted and recorded to date of fire 98,000
Total sales return recorded but the goods has yet to be received 78,400
Total discounts not taken by customers 24,000
A physical inventory disclosed usable damaged goods which QATAR estimates can be sold to a jobber for P
100,000. What is the estimated cost of inventory destroyed by fire?
A. P 1,490,000 C. P 1,371,120
B. P 1,370,000 D. P 1,447,600

9. AFGHANISTAN INC. used the retail inventory method to estimate inventory for interim statement
purposes. Data relating to the computation of the inventory on December 31, 2023 are as follows:
Cost Retail
Inventory, January 1 720,000 1,000.000
Purchases 4,080,000 6,300,000
Markup 700,000
Markdown 500,000
Sales 5,900,000
Normal shoplifting losses 100,000
Under the average cost approach, what is the estimated cost of inventory on December 31, 2023?
A. 900,000 C. 1,024,000
B. 960,000 D. 1,500,000

10. A fire burned the whole warehouse of CAMBODIA CORP. on November 30, 2021. The following information is
available from CAMBODIA’s records for the eleven months ended November 30, 2021.

Inventory at January 1, 2021 550,000


Total purchases received and recorded from January to date of fire 3,000,000
Total freight of cost of goods purchased and received 60,000
Total credit memo received on goods purchased and received 200,000
Total discounts taken on purchases 60,000
Invoice received for goods purchased but still in transit shipped
On November 30, 2021, FOB Shipping point 120,000
Total sales delivered and recorded form Jan to date of fire 3,600,000
Unrecorded sales invoice for goods delivered 300,000
Total sales returns accounted and recorded to date of fire * 200,000
Total sales discounts taken by customers on recorded sales 40,000
*P40,000 of which relates to credit memo issued to customers for merchandise to be returned next year.
A physical inventory disclosed usable damaged goods which CAMBODIA estimates can be sold to a jobbed P50,000.
Based on recent history, CAMBODIA has a gross profit of 30% of net sales.
REQUIREMENT: Using the gross profit method, what amount of impairment loss on its inventory shall CAMBODIA CORP.
report in its December 31, 2021 profit or loss?
11. Presented below is information taken from for the three months ended March 31, 2021 in relation to KT CORP’s
application of retail inventory method.
Cost Retail
Inventory, Jan 1 P300,000 P1,200,000
Purchases 6,000,000 8,500,000
Purchase returns 380,000 760,000
Purchase discounts 150,000 -
Purchase allowance 50,000 -
Freight-in 20,000 -
Markups 600,000
Markup cancellation 50,000
Departmental transfer-in 600,000 1,100,000
Departmental transfer-out 560,000 1,334,000
Abnormal loss 20,000 40,000
Markdown 316,000
Markdown cancellation 100,000
Sales 7,000,000
Sale returns 700,000
Sales allowance and discounts -
Normal shrinkage 500,000
The company conducted its interim inventory count and valued inventory at P1,200,000.
REQUIREMENTS: Compute a) estimated ending inventory, b) cost of goods sold, c) inventory shortage using
1. Conservative Method
2. Average Method
3. FIFO Method

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