The cost of inventories in applying the valuation at lower of cost or net realizable value

should be assigned by using

Either FIFO or average method

FIFO only
Average method only
LIFO only

Reporting inventory at the LCM is a departure from the accounting principle of

Historical cost
Conservatism
Consistency
Full disclosure

Which statement is NOT valid in relation to the LCM rule for inventories?
Statement 1: Inventories are usually written down to net realizable value on an item-by-
item basis.
Statement 2: It is appropriate to write down inventories based on a classification of
inventory, for example, finished goods or all inventories in a particular industry or
geographical segment.

Statement 2 only
Statement 1 only
Both statements
Neither statements

The original cost of an inventory item is below both replacement cost and net realizable
value. The net realizable value less normal profit margin is below the original cost. Under
LCNRVM method, the inventory item should be valued at

Original cost
Replacement cost
Net realizable value
Net realizable value less normal profit margin

The cost of inventories may not be recoverable under all of the following conditions,
EXCEPT

The selling prices of the inventories have increased.

The estimated costs of completion or the estimated costs to be incurred to make the sale have
increased.
The inventories have become wholly or partially obsolete.
The inventories are damaged
Which of the following is not an acceptable basis for valuation of inventories in published
financial statements?

Prime (Direct) costs

Historical cost
Standard cost
Current selling price less cost to complete and cost to sell

Theoretically, freight and warehousing costs incurred in the transfer of consigned goods
from the consignor to the consignee should be considered

Inventoriable by the consignor

An expense by the consignor
An expense by the consignee
Inventoriable by the consignee

Goods on consignment should be included in the inventory of

The consignor but not the consignee

Both the consignor and the consignee
The consignee but not the consignor
Neither the consignor nor the consignee

All of the following costs should be charged against revenue in the period, EXCEPT

Costs of normal shrinkage and scrap incurred for the manufacture of a product in ending
inventory.
Manufacturing overhead costs for a product manufactured and sold in the same accounting
period.
Costs which will not benefit any future period.
Costs from idle manufacturing capacity resulting from an unexpected plant shutdown.

The use of a discounts lost account implies that the recorded cost of a purchased inventory
item is its

Invoice price less the purchase discount allowable whatever taken or not
Invoice price
Invoice price plus the purchase discount lost
Invoice price less the purchase discount taken

The use of purchase discounts account implies that the recorded cost of a purchased
inventory item is its

Invoice price
Invoice price plus any purchase discount lost
Invoice price less the purchase discount taken
Invoice price less the purchase discount allowable whether taken or not

Theoretically, cash discounts permitted on purchased raw materials should be

Deducted from inventory, whether taken or not

Added to other income, whether taken or not
Added to other income, only if taken
Deducted from inventory, only if taken

When a portion of inventories has been pledged as security on a loan

The fact should be disclosed but the amount of current assets should not be affected
The value of the portion pledged should be subtracted from the debt
An equal amount of retained earnings should be appropriated
The cost of the pledged inventory should be transferred from current to noncurrent asset

If a material amount of inventory has been ordered through a formal purchase contract at
balance sheet date for future delivery at firm prices

This fact must be disclosed

Disclosure is required only if prices have declined since the date of the order
Disclosure is required only if prices have since risen substantially.
An appropriation of retained earnings is necessary.

Which of the following items should be included in a company’s inventory in the statement
of financial position?

Goods in transit which were purchased FOB shipping point.

Goods in transit which were purchased FOB destination.
Goods received from another company for sale on consignment.
Goods sold to a customer which are being held for the customer to call for at the customer’s
convenience.

Which statement is incorrect with respect to inventories under PAS No. 2?

The costs of conversion of inventories include costs directly related to the units of production
such as direct labor, and a systematic allocation of variable production overhead.
Inventories should be measured at the lower of cost and net realizable value.
The cost of inventories should comprise all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and condition.
The cost of inventories of a service provider consists primarily of labor and other costs of
personnel directly engaged in providing the service, including supervising personnel and
attributable overhead.

The inventories of a service provider may simply be described as

Work in progress
Unbilled receivables
Billed receivables
Deferred costs

The cost of purchase of inventory does not include

Trade discount, rebate and other similar item

Purchase price
Import duties and taxes
Freight, handling and other cost directly attributable to acquisition

The cost of inventories that are not ordinarily interchangeable and goods or services
produced and segregated for specific projects should be assigned by using

Specific identification
LIFO
FIFO
Average method

Which costs may be capitalized as cost of inventories?

Normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.
Storage costs
Selling costs
Foreign exchange differences which arises directly on the recent acquisition of inventories
invoiced in a foreign currency.

Net realizable value is

Estimated selling price less estimated cost to complete and estimated cost to sell
Current replacement cost
Estimated selling price
Estimated selling price less estimated cost to complete

When using a perpetual inventory system

I. No purchases account is used.
ll. A cost of goods sold account is used.
lll. Two entries are required to record a sale.

I and II only
II only
II and III only
I, II and III
Which one of the following inventory costing method lends itself most to manipulation of
reported net income among periods.

FIFO periodic
LIFO perpetual
FIFO perpetual
LIFO periodic

During periods of arising prices, when the FIFO inventory cost flow method is used, a
perpetual inventory system would

Result in the same ending inventory as a periodic system

Not be permitted
Result in a higher ending inventory than a periodic system inventory system
Result in a lower ending inventory than a periodic inventory system

Generally, which inventory costing method approximates most closely the current cost for
each of the following:

FIFO cost of sales and FIFO ending inventory

LIFO cost of sales and FIFO ending inventory
LIFO cost of sales and LIFO ending inventory
FIFO cost of sales and LIFO ending inventory

To produce an inventory valuation which approximates the lower of cost or market using
the conservative retail inventory method, the computation of the ratio of cost to retail
should

Include markups but not markdowns

Include markups and markdowns
Ignore both markups and markdowns
Include markdowns but not markups

The gross margin method of estimating ending inventory may be used for all of the
following except

Internal as well as external year-end reports

Internal as well as external interim reports
Estimate of inventory destroyed by fire or other casualty
Rough test of the validity of an inventory cost determined under either periodic or perpetual
system.

The gross profit method of inventory valuation is invalid when

The gross profit percentage applicable to goods in the ending inventory is different from the
percentage applicable to goods sold during the period.
A portion of the inventory is destroyed.
There is substantial increase in inventory during the year.
There is no beginning inventory because it is the first year of operation.

Identify which of the following costs of a product manufacturer would be included in

inventories:
Salaries of assembly line workers
Raw materials
Salary of factory foreman
Heating cost for the factory
Miscellaneous supplies used in production process
Salary of the CEO
Costs to ship raw materials from the supplier to the factory
Electricity cost for the factory
Salaries of the sales team
Salaries of the factory’s janitorial staff
Depreciation of factory machines
Property taxes on factory building
Discounts for early payment of raw material purchases
 A- Inventory Measurement

B- Bonus Round

Who is the father of accounting?

Luca Pacioli
Luke Skywalker
Stephen Hawking
Leonardo da Vinci

What is the title of this course?

Intermediate Accounting 1
Practical Accounting 1
Financial Accounting 1
The Beginning of the End

C- Inventory Estimation

D- Bonus Bonus Round!

Complete the poem: My Head, Shoulders, Knees and ____

Toes
Legs
Chest
Cheeks

If gloves are for hands, then socks are for ____

Feet
Eyes
Ears
Mouth
Nose

If Batman has Robin, then Mulan is from ____

China
Britain
North America
Sudan

You are provided with the following for the quarter ended March 31, 2021: Raw materials
1/1/2021 – 10,000 units @P6.00; 1st Purchases – 8,500 units @P7.00; 2nd Purchases – 11,000
units @P7.50. Transferred 21,500 units of raw materials to work in process: Work in process
1/1/2021 – 5,600 units @P13.50; Direct labor – P250,000; Manufacturing over head – P325,000;
Work in process 3/31/202 – 4,200 units @P13.75. If the company uses the FIFO method for
valuing raw materials inventories, compute for the cost of goods manufactured for the quarter
ended Mar. 31 2021

699,150
734,850
717,000
746,850

You are provided with the following for the year ended December 31, 2021: Materials –
1,400,000; Advance for materials ordered – 200,000; Goods in process – 650,000; Unexpired
insurance on inventories – 60,000; Advertising catalogs and shipping boxes – 150,000; Finished
goods in factory – 2,000,000; Finished goods in company-owned retails store, including 50%
profit on cost – 750,000; Finished goods in hands on consignees including 40% profit on sales –
400,000; Finished goods in transit to customers, shipped FOB destination, at cost – 250,000;
Finished goods out on approval, at cost – 100,000; Unsalable finished goods, at cost – 50,000;
Office supplies – 40,000; Materials in transit shipped FOB shipping point, excluding freight of
P30,000 – 330,000; Goods held on consignment, at sales price, cost P150,000 – 200,000. What is
the correct amount of inventories?

5,500,000
5,610,000
5,375,000
5,450,000

A certain company uses FIFO method to measure its inventory. You are provided with the
following information on its ending inventory that costs 9,500,000 on December 31, 2021:
Estimated selling price – 14,000,000; Estimated cost to complete and cost of disposal –
5,000,000; Normal profit margin – 2,000,000; Current replacement cost – 8,000,000. At
December 31, 2021, the company should report inventory at

9,000,000
9,500,000
8,000,000
7,000,000

A company sells only one product that is purchased from numerous suppliers. You are provided
with the following for the year ended December 31, 2021: Sales (100,000 units) – 15,000,000;
Sales discount – 1,000,000; Purchases – 9,300,000; Purchase discount – 400,000; Freight in –
100,000; Freight out – 200,000

Details of the company’s purchases in 2021 follow: 30,000 units for a total of 1,950,000 on
March 31, 40,000 units for a total of 2,800,000 on June 30, 50,000 units for a total of 3,750,000
on September 30, and 10,000 units for a total of 800,000 on December 31. The inventory on
January 1 contains 20,000 units with a total cost of 1,200,000.

The company’s accounting policy is to report inventory in its financial statements at the lower of
cost or market, applied to total inventory. Cost is determined under the first-in, first-out method.

The company has determined that, at December 31, 2021, the replacement cost of its inventory
was P70 per unit and the net realizable value was P72 per unit. The normal profit margin is P10
per unit.

What should be reported as cost of goods sold for the year 2021?
6,400,000
6,700,000
6,600,000
7,100,000

You are provided with the following by a certain company for the quarter ended March 31, 2021:
Total merchandise purchased January through March 15, recorded at net – 4,900,000;
Merchandise inventory at December 31, 2020, at selling price – 1,500,000

All purchases done on credit and no payments have been made since the inception of the
company. All inventories are marked to sell at 50% above invoice cost before discounts of 2/10,
n/30. No sales were made in 2021.

How much cash is required to eliminate the current balance in accounts payable?

6,000,000
6,400,000
5,900,000
5,750,000

You are provided with the following by a certain company for the year ended December 31,
2021: Inventory shipped on consignment to Company X - 600,000; Freight paid by your
company - 50,000; Inventory received on consignment from Company Y - 800,000; Freight paid
Company Y - 50,000. None of these consigned goods were sold. What should be reported as
consigned inventory in your company’s statement of financial position as of December 31, 2021?

650,000
600,000
1,450,000
1,500,000

You are provided with the following by a certain company for the year ended December 31,
2021: Inventory, January 1 (at cost) – 2,000,000; Purchases (at cost) – 10,600,000; Inventory,
January 1 (at retail) –3,000,000; Purchases (at retail) –14,000,000; Net markups (at retail) –
1,600,000; Net markdowns (at retail) –600,000; Sales (at retail) –12,000,000; Estimated normal
shoplifting losses (at retail) – 400,000; Estimated normal shrinkage is 5% of sales. What amount
should as cost of goods sold under the average cost retail method?

9,100,000
8,400,000
8,680,000
7,700,000

You are provided with the following by a certain company for the year ended December 31,
2021: Inventory, January 1 –10,000,000; Purchases –40,000,000; Writeoff of obsolete inventory
–5,000,000; Inventory, December 31 – 3,000,000. What amount should as cost of goods sold?

42,000,000
47,000,000
45,000,000
50,000,000

You are provided with the following by a certain company for the year ended December 31,
2021:Decrease in raw materials inventory – 1,000,000; Increase in goods in process inventory –
3,000,000; Increase in finished goods inventory – 2,000,000; Raw materials purchased –
40,000,000; Direct labor payroll – 10,000,000; Factory overhead – 6,000,000; Freight out –
4,000,000; Freight in – 5,000,000. What amount should as cost of goods sold?
57,000,000
59,000,000
61,000,000
63,000,000

The company uses the retail inventory method to approximate the lower of cost or market. The
following items at cost is available to you for the current year: Beginning inventory (at cost) –
1,300,000; Purchases (at cost) –18,000,000; Freight in (at cost) –400,000; Purchase returns (at
cost) –600,000; Purchase allowances (at cost) –300,000; Transfer in from preceding department
(at cost) –400,000. The following items at retail is also made available to you: Beginning
inventory (at retail) –2,600,000; Purchases (at retail) –29,200,000; Purchase returns (at retail) –
1,000,000; Transfer in from preceding department - 600,000; Net markups(at retail) –600,000;
Net markdowns(at retail) –2,000,000; Sales(at retail) –24,400,000; Sales discounts(at retail) –
200,000; Employee discounts(at retail) –600,000. What should be reported as the estimated cost
of inventory at the end of the current year?

3,000,000
3,120,000
3,200,000
3,840,000
The work-in-process inventory of a company were completely destroyed by fire on June 1, 2021.
The following were established: Raw materials, 1/1/2021 – 60,000, Work-in-process, 1/1/2021 –
200,000, Finished goods, 1/1/2021 – 280,000, Raw materials, 6/1/2021 – 120,000, Finished
goods, 6/1/2021 – 240,000.

Other relevant information were determined also: Sales - 546,750; Raw material purchases -
200,000 plus freight of 30,000; Factory Overhead - 256,000; Direct Labor costs – 62.5% of
overhead. Gross profit rate is 35%.

What is the estimated cost of work in process inventory lost?

265,000
314,612
185,000
366,000

You are provided with the following by a company from their 2021 accounting records:
Inventory, 1/1/2021 – 6,000,000, Purchases– 20,000,000, Sales – 30,000,000

On December 31, 2021, a physical inventory count resulted to an ending inventory of 4,500,000.
A constant 30% gross profit rate was maintained in recent years. However, the head of
warehouse suspects that some inventory may have been taken by one of the employees.

What is the estimated cost of missing inventory?

500,000
5,000,000
4,500,000
0