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PAS 2 Inventories
QUIZ:

1. Which of the following is added to the cost of inventories?

a. Storage costs of part-finished goods
b. Trade discounts
c. Refundable purchase taxes
d. Administrative costs

2. Which of the following costs are included in the cost of inventories?

a. Transport costs for raw materials
b. Abnormal material usage
c. Storage costs relating to finished goods
d. Administrative and general overhead

3. How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realisable value (NRV) according to PAS 2?
a. Added to cost
b. Ignored
c. Deducted in arriving at NRV
d. Deducted from cost

4. The cost of inventory should not include

I. Purchase price.
II. Import duties and other taxes.
III. Abnormal amounts of wasted materials.
IV. Administrative overhead.
V. Fixed and variable production overhead.
VI. Selling costs.

a. II, III, IV, V

b. III, IV, VI
c. I, II
d. II, III, IV, V, VI

5. The Coronet Company has a cost card in relation to an item of goods manufactured as follows:
Materials 70
Storage costs of finished goods 18
Delivery to customers (Freight out) 4
Non-recoverable purchase taxes 6

According to PAS 2, at what figure should the item be valued in inventory?

a. 88
b. 76
c. 98
d. 94
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6. Inventories are measured at

a. Lower of cost and fair value.
b. Lower of cost and net realizable value.
c. Lower of cost and nominal value.
d. Lower of cost and net selling price.
e. Choices b and d.

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

a. Cost of direct labor.
b. Factory rent and utilities.
c. Salaries of sales staff (sales department shares the building with factory supervisor).
d. Factory overheads based on normal capacity.

Use the following information for the next three questions:

Entity A, a trading entity, buys and sells Product Z. Movements in the inventory of Product Z
during the period are as follows:

Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
12 Sale 320
21 Purchase 200 21 4,200

8. How much is the ending inventory under the FIFO cost formula?
a. 6,540
b. 5,840
c. 5,640
d. 4,860

9. How much is the ending inventory under the Weighted Average cost formula? (The average is
calculated on a periodic basis.)
a. 5,180
b. 5,280
c. 5,460
d. 5,580

10. How much is the ending inventory under the Weighted Average cost formula? (The average is
calculated as each additional purchase is made, i.e., ‘moving average’.)
a. 5,860
b. 5,680
c. 5,580
d. 5,380

“Be strong and courageous. Do not fear of be in dread of them, for it is the Lord your God who goes with you. He
will not leave you or forsake you.” (Deuteronomy 31:6)

- END -
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SOLUTIONS:

5. B 70 + 6 = 76

8. C Solution:

Date Transaction Units

Feb. 1 Beginning inventory 100
7 Purchase 300
12 Sale (320)
21 Purchase 200
  Ending inventory (in units) 280

  Units Unit cost Total cost

From Feb. 21 purchase 200 ₱21 ₱4,200
From Feb. 7 purchase (280 - 200) 80 18 1,440
Ending inventory (at cost) ₱5,640

9. A Solution:

Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15 ₱1,500
7 Purchase 300 18 5,400
21 Purchase 200 21 4,200
  Total goods available for sale 600 ₱11,100

Formula:
Weighted ave. Total goods available for sale (TGAS) in pesos
=
cost Total goods available for sale (TGAS) in units

Weighted average unit cost = ₱11,100 ÷ 600 = ₱18.50

Ending inventory (in units) - see computation above 280

Weighted average unit cost ₱18.50
Ending inventory (at cost) ₱5,180

10. C Solution:

Date Transaction Units Unit cost Total cost

Feb. 1 Beginning inventory 100 ₱15.00 ₱1,500.00
7 Purchase 300 18.00 5,400.00
  400 17.25 (a) 6,900.00
12 Sale (320) (5,520.00)
21 Purchase 200 21.00 4,200.00
  Ending inventory 280 ₱5,580.00

(a)
Moving ave. cost = TGAS at cost ÷ TGAS in units
= (₱6,900 ÷ 400) = ₱17.25
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Cost of sales = 320 units sold x ₱11.50 moving ave. cost = ₱5,520