PAS 2, INVENTORIES – Quiz

1. The valuation of inventory on a prime cost basis

a. Would achieve the same results as direct costing
b. Is always achieved when the FIFO is adopted
c. Would exclude all overhead from reported inventory cost
d. Is always achieved when standard costing is adopted
2. Which of the following costs should not be included as part of the cost of inventory?
a. Conversion costs
b. Import duties
c. Abnormal freight
d. All of these are included in inventory
3. Variable production overheads are allocated to each unit of production on the basis of
a. Actual use of the production facilities
b. Neither the normal capacity nor the actual use of production facilities
c. Either the normal capacity or the actual use of production facilities, whichever is appropriate
d. Normal capacity of the production facilities
4. Consumable stores or supplies to be consumed in the production process are reported as
a. Property, plant and equipment
b. Investment property
c. Intangible assets
d. Inventories
5. Which is not an acceptable basis in measuring inventory?
a. Prime cost
b. Net realizable value
c. Fair value less cost of disposal
d. Historical cost
6. Reporting inventory at the lower of cost and net realizable value is a departure from
a. Historical cost
b. Conservatism
c. Full disclosure
d. Consistency
7. When determining the unit cost of an inventory, which of the following should not be included?
a. Commission paid when inventory is purchased
b. Interest on loan obtained to purchase the inventory
c. Labor cost of the inventory when manufactured
d. Depreciation of plant equipment used in manufacturing
8. What is the treatment for abnormal freight in?
a. Charge to finished goods inventory.
b. Charge to expense for the period.
c. Allocate to raw materials, work in process and finished goods.
d. Charge to raw materials inventory.
9. The costs of inventory of a service provider include which of the following?
a. All of these are included.
b. Labor and other costs of personnel directly engaged in providing the service.
c. Compensation of supervisor directly engaged in providing the service.
d. Attributable overhead incurred in providing the service.
10. An example of an inventory accounting policy that should be disclosed is
a. Identification of major suppliers.
b. Effect of inventory profit caused by inflation.
c. Classification of inventory into raw materials, work in process and finished goods.
d. Method used for inventory costing.
11. Which of the following statements is true regarding inventory write-down and reversal of write-down?
a. Separate reporting of reversal of inventory write-down is required.
b. Entities are required to record write-down in a separate loss account.
c. All the choices are correct.
d. Reversal of inventory write-down is prohibited.
12. Lower of cost and net realizable value
a. Gives the lowest valuation if applied to major group of inventories.
b. Gives the lowest valuation if applied to individual item of inventory.
c. Must be applied to major group.
d. Gives the lowest valuation if applied to the total inventory.
13. Which of the following inventory method reports most closely the current cost of inventory?
a. Weighted average
b. Specific identification
c. FIFO
d. LIFO
14. Theoretically, how should warehousing cost and interest on inventory loan affect the cost of inventory,
respectively?
a. No effect and No effect
b. No effect and Increase
c. Increase and Increase
d. Increase and No effect
15. During periods of rising prices, when the FIFO inventory cost flow method is used, a perpetual inventory system
would
a. Not be permitted.
b. Result in a lower ending inventory than a periodic inventory system.
c. Result in the same ending inventory as a periodic inventory system.
d. Result in a higher ending inventory than a periodic inventory system
16. Which method may be used to record a loss due to a price decline in the value of inventory?
a. Sales method
b. Loss method and cost of goods sold method
c. Cost of goods sold method
d. Loss method
17. Inventories are defined as
a. Tangible assets held for sale in the ordinary course of business, in the process of production, or in the form of
materials or supplies to be consumed in the production process or in the rendering of services.
b. Assets used in the production or supply of goods and services for administrative purposes.
c. Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the
form of materials or supplies to be consumed in the production process or in the rendering of services.
d. Assets held for sale, in the process of production, or in the form of materials or supplies to be consumed in
the production process.
18. Which of the following should be taken into account when determining the cost of inventory?
a. Recoverable purchase tax
b. Abnormal freight in
 c. Interest on inventory loan
d. Storage cost of part-finished goods
19. This cost formula assumes that the items of the inventory that were purchased or produced first are sold first
and consequently the items remaining in inventory at the end of the period are those most recently purchased
or produced.
a. Weighted average
b. FIFO
c. LIFO
d. Moving average
20. Which of the following terms represents the deduction from the invoice price of purchased goods granted by
suppliers for early payment?
a. Purchase return and allowance
b. Trade discount
c. Purchase discount
d. Sales discount
21. PAS 2 does not apply to financial instruments.
a. True
b. False
22. PAS 2 applies to biological assets related to agricultural activity and agricultural produce at the point of harvest.
a. True
b. False
23. PAS 2 does not apply to the measurement of inventories held by commodity broker-traders who measure their
inventories at fair value less costs to sell.
a. True
b. False
24. Inventories are assets held for sale in the ordinary course of business, in the process of production for such sale,
and in the form of materials to be consumed in production or rendering service.
a. True
b. False
25. Fair value is entity specific, and NRV is not.
a. True
b. False
26. The cost of inventories includes all costs of purchase, conversion, and other costs incurred in bringing the
inventories to the present location and condition.
a. True
b. False
27.  Trade discounts and rebates are added to determine cost of purchase.
a. True
b. False
28. Abnormal amounts of wasted materials are excluded from cost of inventories.
a. True
b. False
29. Storage costs necessary in production are excluded in cost of inventory.
a. True
b. False
30. Unnecessary administrative overheads and selling costs are excluded from cost of inventory.
a. True
b. False
31. Cost of jewelries should be assigned by using specific identification of their individual costs.
a. True
b. False
32. Costs of inventories can always be recovered if estimated costs to make the sale have increased.
a. True
b. False
33.  Costs of inventories may not be recoverable if inventories are damaged, became wholly or partially obsolete, or
selling prices have declined.
a. True
b. False
34. When inventories are sold, the carrying amount should be recognized as income.
a. True
b. False
35. Any reversal of any write down of inventories, arising from an increase in NRV, shall be added to income.
a. True
b. False