6-1

1. Method of recording inventory where it requires physical count in determining the cost of
ending inventory -Periodic
2. measurement basis that is not entry specific – Fair value
3. assumes that inventory that were purchased or produced first are sold – FIFO
4. Meaning of FOB – Free on board
5. Privilege given to customers granting an exceptional right of return beyond the normal standard,
so as to place doubt to the true nature of the sale – unusual right of return
6. Meaning of CIF- Cost, Insurance, freight
7. Owner of consigned goods – consignor
8. Type of entity that has only one type of inventory – merchandising entity
9. Difference between the purchase price of inventory under normal credit terms and the cash
price equivalent – interest over the period of financing
10. Costing method that takes into account the normal level of materials and supplies labor
efficiency and capacity utilization – standard cost method

Multiple choice

1. S1 total carrying amount of inventories and the carrying amount in classification appropriate to
the entity shall be disclosed to the notes of financial statements
S2 the amount of any reversal of any write down of inventories arising from an increase in nrv
shall be recognized as a reduction in the number of inventories recognized as an expense in the
period in which the reversal occurs
D. both statements are true

2. Estimated selling price in the ordinary cost of business less the estimated costs of completion
and the estimated costs necessary to make the sale
D nrv
3. Inventories shall be measured at
d. lower of cost and nrv

4. Weighted average inventory costing method is particularly suitable to inventory where

a. Homogenous products are mixed together
5. Cost of conversion is
d. direct materials, direct labor, and factory overhead

6. S1 nrv is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date
S2 nrv is an entity specific value
B only the statement 2 is true
7. Technique for the measurement of costs which is determined by reducing the sales value of the
inventory by the appropriate percentage
A. Retail method
8. Which of the following is not a basic assumption of the gross profit method
9. With regards the initial measurement of inventory, which of the following is incorrect?
a. The cost of purchase comprise the purchase price, import duties and other recoverable
taxes
10. In the period or rising prices the inventory method which tends to give the highest reported net
income
A. fifo
11. s1 materials and other supplies held for use in the production of inventories are written down
below cost if the finished products in which they will be incorporated are expected to be sold
below cost
23 the amount of any write down of inventories to net realizable value and all losses of
inventories shall not be recognized as an expense in the period the write down or loss occurs
a. only statement 1 is true
12. the financial statement shall disclose the following
b. the fair value of inventories recognized as an expense
13. FIFO
c. Favors the financial position
14. The allocation of fixed factory overhead is based on what capacity level \
d. Normal capacity level
15. S1 the cost of purchase inventory includes the trade discounts, rebates and other similar items
S2 cost of designing products for specific customers should be capitalized as part of inventory
costs
C both statements are false
16. When inventory declines in value below the original cost what is the maximum amount that the
inventory can be valued at?
a. NRV
17. S1 under cost of conversion only variable production overhead is included as part of the cost
S2 variable production cost are those indirect costs of production that remain relatively constant
in per unit basis regardless of the volume of production
C both statements are false
18. Which of the following items should be included in a companys inventory at the balance sheet
date?
d.goods in transit which are purchased at FOB shipping point

19. Which is not a mandated disclosure in relation to inventory

d.fair value less cost of disposal of inventory pledged as security
20. Net realizable value is
d.estimated selling price less estimated cost to complete and estimated cost of disposal

21. Pas 2 applies to all inventories expect

d.all of the above

22. The following may be included in the cost of inventories exepct

d.storage cost

23. The use of gross profit assumes

Cthe amount of gross profit is the same as in prior years

24. Which is not a mandated disclosure in relation to inventory

a. The carrying amount of each item of inventory

25. S1 thereail method takes into account normal levels of

S2 the cost of inventories of items that are not ordinarily interchangeable specif

b.only the 2nd statement is true

6-3
1. Sandpaper – n
2. Material handling – y
3. Woods, plastic and other materials for sports equipment – y
4. Indirect manufacture labor – y
5. Direct manufacture labor -y
6. Direct materials – y
7. Finished goods inventory – y
8. Work in process inventory – y
9. Leasing cost – n
10. Depreciation - n
11. Property taxes – n
12. Fire insurance – n
13. Direct materials purchases – y
14. Sales commission – n
15. Advertising cost – n
16. Administration cost - n
17. Storage cost for raw materials – y
18. Storage cost for finished items – n
19. Salary expense – n
20. Abnormal spoilage – n