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BALIUAG UNIVERSITY

CPA REVIEW 2014-15
THEORY OF ACCOUNTS

JACF
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INVENTORIES, INVENTORIES VALUATIONS
1. This Standard applies to all inventories, except:
a. Work in progress arising under construction contracts, including directly related service contracts;
b. Financial instruments
c. Biological assets related to agricultural activity and agricultural produce at the point of harvest
d. Cost of raw materials used for production
2. Inventories are assets that include those that are
a. Held for sale in the ordinary course of business
b. In the process of production for such sale
c. List of financial instrument
d. In the form of materials or supplies to be consumed in the production process or in the rendering of services
3. It is the estimated selling price in the ordinary course of business less the estimated costs of completion and the
estimated costs necessary to make the sale.
a. Fair value
b. Net realizable value
c. Present value
d. Future value
4. It is the amount for which an asset could be exchanged, or liability settled, between knowledgeable, willing parties
in an arm’s length transaction.
a. Fair value
b. Net realize able value
c. Present value
d. Future value
5. Inventories shall be measured at the lower of
a. Lower of cost and net realizable value
b. Lower of cost and fair value
c. Lower of cost and future value
d. Lower of cost and present value
6. Cost of inventories shall comprise all costs of
a. Purchase
b. Costs of conversion
c. Other costs incurred in bringing the inventories to their present location and condition
d. All the above
7. The following are added to the cost of inventories except:
a. Purchase price
b. Import duties and other taxes
c. Transport, handling and other costs directly attributable to the acquisition of finished goods, materials and
services

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Page 1 of 7 It is not enough that we do our best; sometimes we must do what is required. – Winston Churchill

Interest expense over the period of the financing c. first-out method d. first-out method d. First-in. that element. Labor and other costs relating to sales and general administrative personnel d. Either a or b 10. First-in. They are regularly reviewed and. first-out method b. An entity may purchase inventories on deferred settlement terms. labor. First-in. Administrative overheads that contribute to bringing inventories to their present location and condition d. When the arrangement effectively contains a financing element. Last-in. a. At depreciable cost less estimated point of sale costs at the point of harvest 12. Disregarded in the computation of inventory d. Fair value less estimated point of sale costs at the point of harvest b. Standard cost method c. – Winston Churchill . sometimes we must do what is required. unless those costs are necessary in the production process before a further production stage c. Gross profit method b. for example a difference between the purchase price for normal credit terms and the amount paid. Inventories comprising agricultural produce that an entity has harvested from its biological assets are measured on initial recognition at their a. Weighted average method c. A cost formula that takes into account the cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is called a. Specific identification method ________________________________________________________________________________________ Page 2 of 7 It is not enough that we do our best. Storage costs. Addition to inventory b. Last-in .BALIUAG UNIVERSITY CPA REVIEW 2014-15 THEORY OF ACCOUNTS JACF __________________________________________________________________________________________________ 8. These costs consists primarily of the following except: a. the difference is recognized as a. A cost formula that is longer acceptable as an inventory costing method is called a. Labor and other costs of personnel directly engaged in providing the service b. revised in the light of current conditions. Amount paid for attributable overheads 11. Specific identification method 14. The following are excluded from the cost of inventory except: a. Amount paid to supervisory personnel c. first-out method b. labor or other production costs b. At cost less estimated point of sale costs at the point of harvest c. Selling costs 9. if necessary.first-out method d. At current cost less estimated point of sale costs at the point of harvest d. Weighted average method c. The inventory of a service provider are measured at the costs of their production. A techniques for the measurement of the cost of inventories that to take into account normal levels of materials and supplies. Last-in. Abnormal amounts of wasted materials. first-out method 13. efficiency and capacity utilization.

19. Under “cost. When inventories are sold. All goods to which the entity has title shall be included in inventory. d. Expense in the period in which the related revenue is recognized b. a. Under CIF. the buyer agrees to pay in a lump sum the cost of the goods. Freight collect d. title passes to the buyer when the carrier takes possession of the goods. Freight prepaid 21. b. None among the choices 17. Freight collect d. – Winston Churchill . Which of the following conversion costs are not part of the cost of inventory? a. Capitalized as part of the asset c. Which of the following statements about inventories is false? a. FOB shipping point c. ________________________________________________________________________________________ Page 3 of 7 It is not enough that we do our best. regardless of location. thus freight charges are actually paid by the buyer. c. insurance cost and freight charge. insurance and freight”. It means that the freight charge on the goods shipped is not yet paid and the common carrier shall collect the same from the buyer. Amount of any reversal of any write-down of inventories d. d. Direct labor costs b. Which of the following terms in connection with purchase of inventory makes the seller retain ownership of the goods in transit and shall legally be responsible for freight charges and other expenses up to the point of destination? a. Ownership determines the inclusion or exclusion of inventory in the financial statements. Inventories are assets which are held for sale in the ordinary course of business. Which of the following statements relating to maritime shipping is not true? a. FOB destination b. b. the seller must pay for the cost of loading. Maybe expense or asset based on judgment call d. the carrying amount of those inventories shall be recognized as an a. sometimes we must do what is required. Other factory overhead d. A seller who ships “free alongside” must bear all expenses and risk involved in delivering the goods up to the dock next to or alongside the vessel on which the goods are to be shipped. and thus the title and risk of loss shall pass to the buyer upon delivery of the goods to the carrier.BALIUAG UNIVERSITY CPA REVIEW 2014-15 THEORY OF ACCOUNTS JACF __________________________________________________________________________________________________ 15. Freight prepaid 20. FOB shipping point c. Not taxable 16. FOB destination b. Any write-down of inventories to net realizable value b. c. Factory supervision costs c. The following are recognized as expense for inventory purposes except: a. All losses of inventories in the period the write-down or loss occurs c. The seller bears the cost of loading and shipment and thus. As long as the entity holds possession of the inventory the ownership remains with it. Salary of sales staff 18.

Retailers such as convenience stores. The following statements are true. 28. – Winston Churchill . Gross method records discounts in the purchase discount account at the time of sales. Meant to encourage prompt payment and to encourage trading or promote sales. groceries store. Which of the following statements is true about methods of recording purchases: a. Cost of goods sold is computed only at the beginning and the end of the period. c. c. Reductions in the invoice price allowed when payment is made within the discount period. sales or consumption and acquisitions that normally approximate the entity’s need for the current operating cycle and thus presented as current assets. 23. c. In net method cost of purchases are measured net of cash discounts allowable whether taken or not. except. Recorded as deduction from gross sales. The following statement/s is / are true. To be adopted when the inventory items treated individually have small peso investment and relativelymoving. hardware and auto parts stores normally use physical inventory system in accordance with PAS 2. b.BALIUAG UNIVERSITY CPA REVIEW 2014-15 THEORY OF ACCOUNTS JACF __________________________________________________________________________________________________ 22. current purchases and ending inventories of a merchandising entity. Perpetual inventory system needs: a. d. Increases and decreases in inventories to be reflected in the bin cards and stock cards. Cost of holding ________________________________________________________________________________________ Page 4 of 7 It is not enough that we do our best. c. Notes to financial statements shall disclose the composition of inventories of a manufacturing entity. Reductions in list price or catalog price in order to get the invoice price or actual amount charged to the buyer. Cost of conversion d. a. Trade discounts are: a. d. b. c. Physical counting of goods on hand at the end of the accounting period is being done to determine actual quantities. the consignor who is the owner transfers physical possession of certain goods to a consignee who as agent sells the goods on the consignee’s behalf. All statements are true. and the balances represent the inventory at hand. Inventories shall be presented as one line item in the statement of financial position but the details of the inventories shall be disclosed in the notes to financial statements. a. 24. b. Freight and other handling charges are part of the cost of inventory of consigned goods. d. Cost of goods sold to be computed at the time of every sales period. 25. Inventories are either acquired for production. d. d. 26. 27. b. In consignment. In gross method the cost of purchases is measured net of allowable cash discount at the time of sales. a. Other costs incurred in bringing the inventory to its present location and condition. Net method deducts discounts from purchases when measuring cost of goods sold. b. Actual quantities are multiplied by the estimated costs to get the inventory balance. Cost of purchases b. In a periodic or physical inventory system which is generally used when the individual inventory items have small peso investment and are relatively fast-moving. Which does not comprise the “cost” of inventory? a. b. Physical count of units on hand to be done at least twice a year or in a more frequent interval to confirm the balances appearing on the bin cards. Notes to financial statements shall disclose the beginning inventories. c. c. sometimes we must do what is required. d. Goods on consignment shall be included in the consignee’s inventory and excluded from the consignor’s inventory.

The cost of inventories that are not ordinarily interchangeable and inventories that are segregated for specific projects shall be determined using. Specific identification method d. Current replacement cost not exceeding NRV or less tan NRV minus normal profit margin. Periodic weighted inventory method expresses inventory in terms of beginning inventory plus total cost of purchases during the period divided by the total units purchased plus those in the beginning inventory to get the weighted average unit cost. Administrative overheads d. c. The following statements are not true. Other costs relating to sales and general administrative personnel. Perpetual weighted average method expresses inventory by computing new weighted average unit cost after every purchase and purchase return. FIFO perpetual method.BALIUAG UNIVERSITY CPA REVIEW 2014-15 THEORY OF ACCOUNTS JACF __________________________________________________________________________________________________ 29. Cost of inventory of a service provider includes: a. When inventories are purchased with deferred settlement terms. Labor costs of personnel directly engaged in providing the services to company’s personnel. direct labor and systematic allocation of fixed and variable production overhead that is incurred in converting materials into finished goods b. Moving average method 35. except a. 31. – Winston Churchill . b. d. import duties. b. materials and services. except a. Storage costs related to goods in process. Distribution costs 32. b. Specific identification method is inappropriate for inventories that are segregated for specific project and inventories that are not ordinarily interchangeable. Average method c. 30. d. b. FIFO method expresses inventory in terms of recent prices while cost of goods sold is representative of earlier prices and favors the statement of financial position. c. The allocation of fixed production overhead to the cost of conversion is based on the budgeted capacity of the production facilities. The cost of conversion includes direct materials. d. Labor costs of supervisory personnel directly engaged in providing services to its clients. handling and other cost directly attributable to the acquisition of finished goods. The amount of fixed overhead allocated to each unit of production is increased as consequence of low production or idle capacity. Selling price less cost to sell c. d. and irrevocable taxes. a. Unallocated overhead is recognized as expense in the period in which it is incurred. b. b. Rebates are deducted in determining the cost of purchase in perpetual inventory system. d. Abnormal wastages c. Other costs relating to personnel directly engaged in providing services to company’s personnel. 33. The following statements are true about “cost of purchases”. Current replacement cost 34. Inventories shall be measured at: a. a. Foreign exchange differences which arise directly from the recent acquisition of inventories are not included as part of cost of purchase. ________________________________________________________________________________________ Page 5 of 7 It is not enough that we do our best. Which of the following is false? a. Lower of cost and selling price minus cost to sell. All but one of the following costs are included in the cost of inventory. c. Cost of purchase of inventory includes purchase price. freight out. sometimes we must do what is required. c. the difference between the purchase price for normal credit terms and the amount paid is recognized as interest expense over the period of financing.

sometimes we must do what is required. Analyze the following statements. 2. a. c. The amount of inventories recognized as an expense during the period. d. STATEMENT 3: The gain on reversal of inventory writedown is recorded only to the extent of the allowance balance and included is the computation of cost of goods sold. c. STATEMENT 2: The “loss method” records inventory at cost and any loss on inventory writedown is accounted for separately and included in the computation of cost of goods sold. 39. The circumstances or events that led to reversal of a writedown. STATEMENT 1: The “cost of goods sold” method records inventory at lower of cost or net realizable value and any loss written down is not accounted for separately but “buried” in the cost of goods sold. When agricultural products are harvested. d. Broke-trader’s commodities are measured at the price that would be received to sell the asset or paid to transfer a liability in an orderly transaction between participants at the measurement date.BALIUAG UNIVERSITY CPA REVIEW 2014-15 THEORY OF ACCOUNTS JACF __________________________________________________________________________________________________ 36. Statement 1 is true b. b. Estimated selling price less estimated b. Current replacement cost 37. b. The total carrying amount of inventories and carrying amount in classifications appropriate to the entity. Estimated selling price less estimated cost to complete and dispose c. Which is correct? a. the inventory is measured at net realizable value and the decrease in value is not recognized as expense. Statements 1 and 3 are false. d. the inventory is stated at cost and the increase in value is recognized II. except a. forest and mineral products are measured at net realizable value at the following stage of production. d. Statement 2 is true c. Statements 1. A decline in the purchase price after a non-cancelable purchase commitment is recorded as a loss in the period of price commitment. – Winston Churchill . labor efficiency and capacity utilization. a. Both statements are true d. Standard costs method may be used for convenience if result s approximate cost and on the basis of actual level of materials and supplies. Both statements are false 38. If the net realizable is lower than cost. and 3 are true. the single cost is apportioned among the commodities based on their respective sales price which is based on the philosophy that costs is appropriate selling price. 41. When different commodities are purchased at a lump sum. Inventories are usually written down to LCNRV on an item by item or individual basis and thus: I. 2. When mineral ore have been extracted. Statements 1 and 2 are true. including the cost. Net realizable value equals a. b. c. Inventories of agricultural. If cost is lower than the net realizable value. c. Current replacement cost not exceeding NRV or less tan NRV minus normal profit margin. b. When homogenous market exists and there is a intelligible risk of failure to sell. Financial statements shall disclose the following with respect to inventories. d. When sales is assured under a forward contract or a government guarantee. except a. ________________________________________________________________________________________ Page 6 of 7 It is not enough that we do our best. with a debit to loss on purchase commitment and credit to liability while gain is recognized to the extent of more than the loss previously recorded . and 3 are false. The accounting policy adopted in measuring inventories. Statements 1. 40.

Preparation of year-end statements 43. Determination of inventory loss due to fire and other catastrophe or theft. Analyze the following statements. rose to P30.00. c. Proof of the reasonable accuracy of a physical count. Net markup of P1. PAS 2 provides that the percentage used under retail method shall take into consideration inventory that has been marked down to below its original selling price and requires the use of either FIFO or average method as cost formula. Statement 2 is wrong c. Statement 1 is correct b. Preparation of interim statements d.00. c. is based on the major assumption that the rate of income remains approximately the same from period to period. A cost ratio is computed for the current year thus the current purchases are considered together with markups and markdowns and the beginning inventory is included in the computation. d. b. a. None of the above 45. except a. Cost ratio is determined by including markups and excluding markdowns in computing the goods available for sale at retail. whereby cost of sales is determined through the use of the gross profit rate.00 and ended up at P21 has a net: a. Both statements are correct d. Both statements are false 44. – Winston Churchill . b. Which is not a reason for making an estimate of inventory? a. STATEMENT 2: Computing the ending inventory as the difference between goods available for sales at selling price and gross sales multiplied by the cost ratio is called retail inventory method.00 c.BALIUAG UNIVERSITY CPA REVIEW 2014-15 THEORY OF ACCOUNTS JACF __________________________________________________________________________________________________ 42.00 d. All are applications of retail inventory method. sometimes we must do what is required. END ________________________________________________________________________________________ Page 7 of 7 It is not enough that we do our best. if a product costing P20 originally sells for P25. Net markup cancelation of P9. The markups and markdowns are both included in the computation of the cost ratio. Net markdown of P4. Net markdown cancelation of P5. STATEMENT 1: Computing the ending inventory as the difference between goods available for sale less cost of sales. b. thus.