Chapter 14

1. Inventories are defined by all the following: held for sale in the ordinary course of business; in
the process of production for such sale; in the form of materials or supplies to be consumed in
the production process or the rendering of services
2. the cost of inventory is the sum of cost of purchase , cause of conversion and other cost
incurred in bringing the inventory to the present location and condition
3. The cost of purchase of inventory include purchase price , import duty , freight and handling
costs
4. The costs of conversion of inventories include direct labor , systematic allocation of fixed
production overhead , systematic allocation of variable production overhead
5. fixed production overhead include depreciation of factory building , maintenance of factory
equipment , cost of factory management and administration
1. This should be taken into account when determining the cost of inventory. Storage cost of part
finished goods
2. This should not be taken into account when determining the cost of inventory. Trade discount
3. This should be included in inventory valuation. Fixed production overhead
4. This would not be reported as inventory. Machinery acquired for use in the production process
5. This costs of conversion cannot be included in cost of inventory. Salaries of sales staff
6. The cost of inventory does not include abnormal amount of wasted material
7. Costs incurred in bringing the inventories to their present location and condition include cost of
designing products for specific customers
8. Inventories and compass on of the following: merchandise purchased by a retailer; finished
goods produced; materials and supplies awaiting used in the production process
9. a property developer must classify properties that it holds for sale in the ordinary course of
business as inventory
10. factory supplies to be consumed in the production process are included in inventory
1. This should not be reported in inventory. Equipment
2. inventory is included in the computation of net income to determine cost of goods sold
3. When inventory is misstated , the presentation lacks faithful representation
4. This costs should not be included as part of the cost of inventory. Abnormal freight
5. This would not be separately accounted for in the computation of cost of goods sold. Trade
discounts applicable to purchases
1. Ifrs prohibits cost flow assumptions. Lifo
2. Disadvantage method measures most closely the current cost of inventory. Lifo
3. in a period of declining prices , the inventory method which tends to give the highest amount of
cost of goods sold is FIFO
4. in a period of falling prices which inventory method provides the lowest amount of ending
inventory. FIFO
5. in a period of rising prices , this inventory method provides the highest amount of net income.
FIFO
1. the specific identification method is required for inventory that is not interchangeable and
goods produced and segregated for specific project
2. this is the reason why the specific identification method may be considered ideal for assigning
cost to inventory. The cost flow matches the physical flow
3. this is likely to be a circumstance where the specific identification method can be used: unit
price is low; inventory turnover is low; inventory quantity is large
 4. this cost flow assumption is used for inventory when an entity builds townhouses. Specific
identification
5. The costing of inventory must be deferred until the end of reporting period under weighted
average method of inventory valuation
1. Inventories shall be measured at lower of cost and net realizable value
2. The cost of inventory shall be measured using either fifo or average method
3. Net realisable value estimated selling price less estimated cost to complete and estimated cost
of disposal
4. Inventories are usually written down to net realizable value item by item
5. the amount of any write down of inventory to net realizable value is recognized as component
of cost of goods sold
1. sales stuff commission be dealt when measuring inventory at lcnrv is deducted in arriving at net
realizable value
2. Trade discounts be dealt when measuring inventory at lcnrv if deducted in arriving at cost
3. Prompt payment discount be dealt when measuring inventory at lc nrv is ignored
4. Import duties be dealt with measuring inventory at lcnrv is added to cost
5. This is not an acceptable method of applying the lcnrv. Inventory location
6. lcnrv of inventory is always either the net realisable value or cost
7. Lower of cost and net realisable value gives the lowest valuation if applied individually
8. lower of cost and net realizable value as it applies to inventory is best described as reporting of a
loss when there is a decrease in the future utility below the original cost
9. allowance method is used to record inventory at net realizable value when there is a direct
reduction in the selling price
10. this is statement is true regarding inventory write down and reversal of write down. Separate
reporting of reversal of inventory write down is required.

Chapter 10

1. the primary purpose of a statement of cash flows is to provide relevant information about the
cash receipts and cash disbursements of any entity during a period
2. cash receipts from royalties and commissions are cash inflows from operating activities
3. Cash flows arising from trading securities are classified as operating activities
4. Cash payments to acquire equity investments are cash inflow from investing activities
5. Cash receipts from issuing shares are cash inflow from financing activities
6. Interest payments to lenders are classified as financing activities
7. dividend payments to shareholders are classified as cash outflows for financing activities
8. Interest received is classified as cash flow from financing activities
9. bank overdrafts that are repayable on demand and the bank balance often fluctuates from
positive to overdrawn shall be classified as financing activities
10. Cash advances and loans made by a financial institution are usually classified as operating
activities

1. Under ifrs , an entity can report interest paid on bank loan in the statement of cash flows in
operating activities
2. under ifrs , the dividend received from share investments can be classified as either an operating
activity or investing activity
3. Under ifrs , dividend paid can be classified only as financing activity
 4. this classification of the cash flow arising from the proceeds from an earthquake disaster
settlement would be most appropriate in cash flow from financing activities
5. cash flows relating to asset held for rental to others are classified as operating

1. Cash equivalents are: treasury bills and money market funds; investment with original maturity
of three months or less; readily convertible two known amount of cash
2. All can be classified as cash and cash equivalents: time deposit due in 60 days; treasury bills due
for repayment in 90 days; bank overdraft
3. When an entity purchased a three-month treasury bill , the purchase be treated in preparing the
statement of cash flows would not reported
4. This is not considered as a cash equivalent. A 60 day money market placement
5. noncash investing and financing activities are disclosed in a note or separate a schedule

Chapter 11

1. this is the first step within the hierarchy of guidance when selecting accounting policies. Apply
the requirements in ifrs dealing with similar and related issue
2. in the absence of an accounting standard that applies specifically to a transaction, this is the
most authoritative source in developing and applying an accounting policy.the requirement and
guidance in the standard or interpretation dealing with similar and related issues
3. A change in accounting policy shall be made when: required by an accounting standard; the
change will result in more relevant or reliable information about the financial position , financial
performance and cash flows of the entity
4. an entity permitted to change an accounting policy because the change would result in the
financial statements providing more reliable information about financial position , financial
performance and cash flows
5. A change in accounting policy requires this kind of adjustment to the financial statements.
Retrospective adjustment
6. a change in accounting policy requires that the cumulative effect of the change for prior periods
should be reported as an adjustment to beginning retained earnings for the earliest period
presented
7. This is accounted for as a change in accounting policy. A change in inventory valuation from fifo
to average method
8. This is a change in accounting policy: the initial adoption of an accounting policy to carry asset at
revalued amount; the change from cost model to revaluation model in measuring poverty , plant
and equipment; a change in the measurement basis
9. This should not be treated as change in accounting policy. A change from cost model to fair
value model in measuring investment property
10. when it is difficult to distinguish between a change in accounting estimate and a change in
accounting policy , the change is treated as change in accounting estimate with no appropriate
disclosure

1. The effect of a change in accounting estimate be accounted in a period of change and future
periods if the change affects both
 2. This is a characteristic of a change in accounting estimate. It does not affect the financial
statements of prior period
3. This is the proper time period to record the effect of a change in accounting estimate. Current
period and prospectively
4. retrospective treatment of change in accounting estimate is prohibited because a change in
accounting estimate is a normal recurring correction or adjustment
5. It is required for a change from sum of years digits two straight line depreciation because the
computation of depreciation for current and future years

1. This is not classified as an accounting change. Error in the financial statements

2. When financial statement for a single year are being presented , a prior period error should be
shown as an adjustment of the beginning balance of retained earnings
3. Prior period errors or omissions and misstatements in the final statements of prior periods
4. an example of a correction from an error is a change from cash basis to accrual basis of
accounting
5. a change from cash basis to accrual basis should be reported retroactive lee as correction of an
error

1. A change in the periods benefited by a deferred cost because additional information has been
obtained is an accounting change that should be reported in the period of change and future
periods if the change affects both
2. a change in the residual value of an asset arising because additional information has been
obtained is an accounting change that should be reported by restating the financial statements
of all prior periods presented
3. This is statement in relation to a change in accounting estimate is true. Change in accounting
estimate results from new information or new development
4. the effect of a change in accounting policy that is inseparable from the effect of a change in
accounting estimate should be reported as a component of income from continuing operations
in the period of change and future periods if the change affects both
5. when an entity change the expected service life of an asset because additional information has
been obtained this should be reported. an accounting change that should be reported in the
period of change and future periods if the change affects both

Chapter 24

1. a financial statement is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity
2. These are classified as a financial instrument: foreign currency contract , warranty provision ,
and loan receivable
3. This cannot be considered a financial asset. a contractual the right to receive cash or another
financial asset from another entity
4. This should be classified as financial asset. Trade accounts receivable
5. a financial liability is a contact well obligation to deliver cash or another financial asset to
another entity
6. Financial liabilities include all the following: trade accounts payable , notes payable , bonds
payable
7. it is any contract that evidences residual interest in the assets of an entity after deducting all of
the liabilities. Equity instrument
8. preference shares that are redeemable mandatorily be presented in the statement of financial
position in either current or non-current liability depending on redemption date
9. this is the presentation of preference dividend on mandatory redeemable preference shares.
Interest expense
10. This is not an equity instrument. Bond payable

1. This is the principal accounting for a compound instrument. the issuer shall classify the liability
and equity components of a compound instrument separately as liability or equity
2. the proceeds from issuing a compound instrument allocated between the liability and equity
should first, the liability component is measured at fair value , and then the remainder of the
proceeds is allocated to the entity component
3. when bonds are issued with share warrants , the equity component is equal to the excess of the
proceeds over the fair value of bonds without the share warrants
4. when bonds are issued with share warrants , a portion of the proceeds should be allocated to
equity when the bonds are issued with both detachable and non detachable share warrants
5. the proceeds from an issue of bonds payable with share warrants should not be allocated
between the liability and equity components when the proceeds should be allocated between
liability and equity under all of these circumstances

1. a bond convertible by the holder into a fixed number of ordinary shares of the issuer is a
compound financial statement
2. Convertible bonds may be exchanged from shares of the issuer
3. Convertible bonds allow an entity to issue debt financing of lower rate
4. This is the accounting for issued convertible bond. The instrument should be recorded solely as
bond
5. issued convertible bonds are separated into liability and equity with a liability recorded at fair
value and the residual assigned to the equity