6.

1 The inventory value for the financial statements of Global Co for the year ended 30 June 20X3
was based on a inventory count on 7 July 20X3, which gave a total inventory value of $950,000.
Between 30 June and 7 July 20X6, the following transactions took place.
$
Purchase of goods 11,750
Sale of goods (mark up on cost at 15%) 14,950
Goods returned by Global Co to supplier 1,500
What figure should be included in the financial statements for inventories at 30 June 20X3?
A $952,750
B $949,750
C $926,750
D $958,950 (2 marks)

6.2 Which of the following costs may be included when arriving at the cost of finished goods
inventory for inclusion in the financial statements of a manufacturing company?
1 Carriage inwards
2 Carriage outwards
3 Depreciation of factory plant
4 Finished goods storage costs 5 Factory supervisors' wages
A 1 and 5 only
B 2, 4 and 5 only
C 1, 3 and 5 only
D 1, 2, 3 and 4 only (2 marks)

6.3 The closing inventory at cost of a company at 31 January 20X3 amounted to $284,700.
The following items were included at cost in the total:
1 400 coats, which had cost $80 each and normally sold for $150 each. Owing to a defect in
manufacture, they were all sold after the reporting date at 50% of their normal price.
Selling expenses amounted to 5% of the proceeds.
2 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work
in February 20X3 cost $5 per skirt, and selling expenses for the batch totalled $800. They
were sold for $28 each.
What should the inventory value be according to IAS 2 Inventories after considering the above
items?
A $281,200
B $282,800
C $329,200
D None of these

6.4 A company values its inventory using the first in, first out (FIFO) method. At 1 May 20X2 the
company had 700 engines in inventory, valued at $190 each.
During the year ended 30 April 20X3 the following transactions took place:
20X2
 1 July Purchased 500 engines at $220 each
1 November Sold 400 engines for $160,000
20X3
1 February Purchased 300 engines at $230 each
15 April Sold 250 engines for $125,000
What is the value of the company's closing inventory of engines at 30 April 20X3?
A $188,500
B $195,500
C $166,000
D None of these figures

6.5 Which of the following statements about the valuation of inventory are correct, according to IAS 2
Inventories?
1 Inventory items are normally to be valued at the higher of cost and net realisable value.
2 The cost of goods manufactured by an entity will include materials and labour only.
Overhead costs cannot be included.
3 LIFO (last in, first out) cannot be used to value inventory.
4 Selling price less estimated profit margin may be used to arrive at cost if this gives a
reasonable approximation to actual cost.
A 1, 3 and 4 only
B 1 and 2 only
C 3 and 4 only
D None of the statements are correct (2 marks)

6.6 A company with an accounting date of 31 October carried out a physical check of
inventory on 4 November 20X3, leading to an inventory value at cost at this date of
$483,700.
Between 1 November 20X3 and 4 November 20X3 the following transactions took place:
1 Goods costing $38,400 were received from suppliers.
2 Goods that had cost $14,800 were sold for $20,000.
3 A customer returned, in good condition, some goods which had been sold to him in
October for $600 and which had cost $400.
4 The company returned goods that had cost $1,800 in October to the supplier, and received
a credit note for them.
What figure should appear in the company's financial statements at 31 October 20X3 for closing
inventory, based on this information?
A $458,700
B $505,900
C $508,700
D $461,500 (2 marks)

6.7 In preparing its financial statements for the current year, a company's closing inventory was
understated by $300,000.
 What will be the effect of this error if it remains uncorrected?
A The current year's profit will be overstated and next year's profit will be understated.
B The current year's profit will be understated but there will be no effect on next year's
profit.
C The current year's profit will be understated and next year's profit will be overstated.
D The current year's profit will be overstated but there will be no effect on next year's profit.

6.8 The financial year of Mitex Co ended on 31 December 20X1. An inventory count on January 4
20X2 gave a total inventory value of $527,300.
The following transactions occurred between January 1 and January 4.
$
Purchases of goods 7,900
Sales of goods (gross profit margin 40% on sales) 15,000
Goods returned to a supplier 800
What inventory value should be included in Mitex Co’s financial statements at 31 December
20X1?
A $525,400
B $527,600
C $529,200
D $535,200 (2 marks)

6.9 Which of the following statements about IAS 2 Inventories is correct?

A Production overheads should be included in cost on the basis of a company's normal level
of activity in the period.
B In arriving at the net realisable value of inventories, trade discounts and settlement
discounts must be deducted.
C In arriving at the cost of inventories, FIFO, LIFO and weighted average cost formulas are
acceptable.
D It is permitted to value finished goods inventories at materials plus labour cost only,
without adding production overheads.

6.10 You are preparing the financial statements for a business. The cost of the items in closing inventory
is $41,875. This includes some items which cost $1,960 and which were damaged in transit. You
have estimated that it will cost $360 to repair the items, and they can then be sold for $1,200.
What is the correct inventory valuation for inclusion in the financial statements?
A $39,915
B $40,755
C C $41,515
D $42,995
6.11 S sells three products – Basic, Super and Luxury. The following information was available at the year
end.
Basic Super Luxury
$ per unit $ per unit $ per unit
Original cost 6 9 18
Estimated selling price 9 12 15
Selling and distribution costs 1 4 5
units units units
Units of inventory 200 250 150
What is the value of inventory at the year end?
A $4,200
B $4,700
C $5,700
D $6,150 (2 marks)

6.12 An inventory record card shows the following details.

February 1 50 units in stock at a cost of $40 per unit
7 100 units purchased at a cost of $45 per unit
14 80 units sold
21 50 units purchased at a cost of $50 per unit
28 60 units sold
What is the value of inventory at 28 February using the FIFO method?
A $2,450
B $2,700
C $2,950
D $3,000 (2 marks)

6.13 IAS 2 Inventories defines the items that may be included in computing the value of an inventory of
finished goods manufactured by a business.
Which one of the following lists consists only of items which may be included in the statement of
financial position value of such inventories, according to IAS 2?
A Supervisor's wages, carriage inwards, carriage outwards, raw materials
B Raw materials, carriage inwards, costs of storage of finished goods, plant depreciation
C Plant depreciation, carriage inwards, raw materials, Supervisor's wages
D Carriage outwards, raw materials, Supervisor's wages, plant depreciation

6.14 The closing inventory of X amounted to $116,400 excluding the following two inventory lines:
1 400 items which had cost $4 each. All were sold after the reporting period for $3 each,
with selling expenses of $200 for the batch.
2 200 different items which had cost $30 each. These items were found to be defective at
the end of the reporting period. Rectification work after the statement of financial position
amounted to $1,200, after which they were sold for $35 each, with selling expenses
totalling $300.
 Which of the following total figures should appear in the statement of financial position of X for
inventory?
A $122,300
B $121,900
C $122,900
D $123,300 (2 marks)

6.15 The inventory value for the financial statements of Q for the year ended 31 December 20X4 was
based on an inventory count on 4 January 20X5, which gave a total inventory value of $836,200.
Between 31 December and 4 January 20X5, the following transactions took place:

$
Purchases of goods 8,600
Sales of goods (profit margin 30% on sales) 14,000
Goods returned by Q to supplier 700
What adjusted figure should be included in the financial statements for inventories at 31
December 20X4?
A $838,100
B $853,900
C $818,500
D $834,300 (2 marks)

6.16 A company has decided to switch from using the FIFO method of inventory valuation to using the
average cost method (AVCO).
In the first accounting period where the change is made, opening inventory valued by the FIFO
method was $53,200. Closing inventory valued by the AVCO method was $59,800.
Total purchases and during the period were $136,500. Using the continuous AVCO method,
opening inventory would have been valued at $56,200.
What is the cost of materials that should be included in the statement of profit or loss for the
period?
A $129,900
B $132,900
C $135,900
D $140,100 (2 marks)

6.17 Which one of the following statements about the use of a continuous inventory system is
INCORRECT?
A In a retail organisation, a continuous inventory system can be used to keep track of the
quantity of each stock item available in its distribution centres.
B Under continuous inventory, the cost of each receipt of inventory and the cost of each
issue from inventory is recorded individually.
C A continuous inventory system removes the need for periodic physical inventory counts.
D Both the FIFO and average cost (AVCO) methods of pricing inventory may be used within a
continuous inventory system.
 6.18 The information below relates to inventory item Z.
March 1 50 units held in opening inventory at a cost of $40 per unit
17 50 units purchased at a cost of $50 per unit
31 60 units sold at a selling price of $100 per unit
Under AVCO, what is the value of inventory held for item Z at the end of March 31?
A $4,000
B $1,800
C $2,000
D $2,500 (2 marks)

6.19 A firm has the following transactions with its product R.

1 January 20X1 Opening inventory: nil
1 February 20X1 Buys 10 units at $300
per unit 11 February 20X1 Buys 12 units at $250
per unit
1 April 20X1 Sells 8 units at $400 per unit
1 August 20X1 Buys 6 units at $200 per unit
1 December 20X1 Sells 12 units at $400 per unit
The firm uses periodic weighted average cost (AVCO) to value its inventory. What is the inventory
value at the end of the year?
A $nil
B $2,057.12
C $2,400.00
D $2,007.20

1A 2C 3A 4A 5C 6d 7c 8c 9a 10b
11b 12c 13c 14c 15a 16b 17c 18b 19b