AFIA – FA2

Chapter 9: Inventories
1 An extract from a business's statement of profit or loss is as follows:
£ £
Sales 70,000
Opening inventory 10,300
Purchases 42,300
52,600
Closing inventory 2,600
50,000
20,000
What is the mark up applied?
A 71.4%
B 47.3%
C 40.0%
D 28.6%

2 A business has opening inventory of £12,300 and closing inventory of £14,700. Purchases for the
year were £68,400.
What is the figure for cost of sales?
A £95,400
B £79,800
C £68,400
D £66,000

3 The mark-up is 35% when:

A cost of sales is £200,000 and sales are £270,000
B cost of sales is £175,500 and sales are £270,000
C cost of sales is £200,000 and gross profit is £94,500
D gross profit is £70,000 and sales are £200,000

Page 1 of 8
4 Brooker paid £130,800 to credit suppliers during the year ended 31 December 20X5. At the
beginning of the year payables totalled £11,750 and at the end they totalled £12,750. The value
of closing inventory was £8,200. Cash purchases were £2,800. The cost of sales for the year was
£148,000.
What was the value of opening inventory?
A £21,600
B £24,400
C £22,400
D £23,200

5 In the year ended 31 December 20X8 Vulcan plc, a retailer, had sales totalling £4,200,000. The
mark-up was 25% of cost. Inventories at 1 January 20X8 had a cost of £600,000 and at
31 December 20X8 of £680,000.
What was the total of the company's purchases during the year ended 31 December 20X8?
A £3,280,000
B £3,360,000
C £3,440,000
D £3,830,000

6 Maddison had 200 units in inventory at 30 November 20X7 valued at £600. During December it
made the following purchases and sales.
3/12 Purchased 1,000 units @ £3.20 each
7/12 Sold 700 units @ £6.00 each
14/12 Purchased 800 units @ £3.50 each
15/12 Purchased 300 units @ £4.00 each
23/12 Sold 400 units @ £6.00 each
29/12 Sold 500 units @ £6.00 each
Which of the following is the correct valuation for closing inventories using the first-in, first-out
(FIFO) valuation method?
A £2,600
B £1,900
C £2,800
D £2,000

Page 2 of 8
7 The following information relates to a business's year end inventory of finished goods.
Direct costs Production Expected
of materials overheads selling costs Expected
and labour incurred overheads selling price
£ £ £ £
Inventories category 1 2,964 2,520 576 6,960
Inventories category 2 11,232 3,276 180 14,450
Inventories category 3 1,740 1,020 228 3,072
15,936 6,816 984 24,482
At what amount should finished goods inventory be stated in the business's statement of financial
position?
A £15,936
B £22,752
C £22,514
D £21,768
8 When a business counts its inventory it discovers that it has 5,000 items of product X and 1,000
of product Y; these cost £12 and £6 respectively. You also discover the following information:
Product X – 600 of these were found to be defective and would be sold at a cut price of £9 each.
Product Y – 100 of these were to be sold for £5 with selling expenses of £1 each.
What figure should appear in the business's statement of financial position for inventory?
A £66,000
B £58,200
C £64,000
D £64,200

9 The cost of inventory shown in Quarry Co's statement of financial position at

31 December 20X7, valued on the first in, first out (FIFO) basis, was £8,660. Had the inventory
been valued on an average cost (AVCO) basis it would have been £7,410.
What is the effect of adopting the AVCO valuation on Quarry Co's financial statements for the
reporting period ended 31 December 20X7?
A Decrease profits and increase current assets by £1,250
B Increase profits and decrease current assets by £1,250
C Decrease profits and decrease current assets by £1,250
D Increase profits and increase current assets by £1,250

Page 3 of 8
10 Your firm values inventory using the average cost (AVCO) method. At 1 June 20X7 there were
100 units in inventory valued at £10 each. On 12 June, 50 units were purchased for £12 each, and
a further 50 units were purchased for £15 each on 20 June. On 21 June, 160 units were sold for
£20.00 each.
What is the value of closing inventory at 30 June 20X7?
A £470
B £2,350
C £493
D £1,880

11 A business has a product for which the cost of production of each unit of inventory is £69
(including delivery inwards of £16 and import duties of £2 on the raw materials element).
Production overheads amount to £23 per unit. Currently the goods can only be sold if they are
modified at a cost of £25 per unit. The selling price of each modified unit is £120 and selling
costs are estimated at 10% of selling price.
At what value should each unmodified unit of inventory be included in the statement of financial
position?
A £92
B £83
C £69
D £76
12 A company sells three products – A, B and C. The following information was available at the
year end.
A B C
£ per £ per £ per unit
unit unit
Original cost 10 14 20
Estimated selling price 14 20 25
Selling and distribution costs 2 5 6
Units Units Units
Units of inventory 100 150 100
What is the value of inventory at the year end?
A £5,000
B £5,100
C £5,200
D £5,300 LO 1d; 3a, c

Page 4 of 8
13 An inventory listing shows the following details.
1 May 50 units in inventory at a cost of £15 per unit
7 May 100 units purchased at a cost of £20 per unit
14 May 80 units sold
21 May 50 units purchased at a cost of £25 per unit
28 May 60 units sold
What is the value of inventory at 31 May using the first in, first out (FIFO) method?
A £900
B £950
C £1,450
D £1,500 LO 1d; 3a, c

14 In preparing its financial statements for the current year, a company's closing inventory was
understated by £50,000.
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.
LO 1d; 2a; 3c

15 The inventory carrying amount in the financial statements of a business for the year ended
31 December 20X7 was based on an inventory count on 4 January 20X8, which gave a total
inventory value of £314,400.
Between 31 December and 4 January 20X8, the following transactions took place:
£
Purchases of goods 8,400
Sales of goods (profit margin 40% on sales) 16,000
Goods returned to supplier 1,000
What adjusted figure for inventories should be included in the financial statements at
31 December 20X7?
A £316,600
B £314,400
C £314,200
D £307,800 LO 1d; 3c

Page 5 of 8
16 A business has a standard mark-up of 30% on cost. During 20X7, its sales are £325,000 and its
purchases were £240,000. Opening inventory was £50,000. The company did not carry out an
inventory count at 31 December 20X7 and has no records of an inventory figure at that date.
What is the balance of closing inventory at 31 December 20X7?
A £10,000
B £25,000
C £40,000
D £50,000 LO 1d; 3a, c

17 The gross profit margin is 20% where:

A cost of sales is £300,000 and sales are £360,000
B cost of sales is £300,000 and sales are £375,000
C cost of sales is £240,000 and gross profit is £48,000
D cost of sales is £240,000 and sales are £280,000 LO 1d; 3a, c

18 Given a selling price of £200 and a mark-up of 25%, the cost price of an item of inventory would
be:
A £50
B £125
C £150
D £160 LO 1d; 3a, c

19 Gardentime Ltd imports garden furniture. The furniture is transported by ship to Portsmouth and
then taken by truck to a warehouse in Bristol. The company is unsure whether the following
expenses should be included in the cost of inventory:
(1) Shipping costs to Portsmouth
(2) Purchase price of furniture
(3) Breakdown costs of a delivery truck which broke down between Portsmouth and Bristol
while transporting furniture
(4) Import duties
Which of the costs should be included in the cost of inventory in Gardentime Ltd's statement of
financial position?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (2) and (4) only
D (1), (3) and (4) only LO 1d; 3a, c

Page 6 of 8
20 Riley buys and sells inventory during November 20X7 as follows:
Cost
Units per unit
£
5 November Opening inventory 60 8
6 November Purchases 80 9
11 November Sales at £20 each 70
14 November Purchases 60 10
20 November Sales at £21 each 40
27 November Purchases 50 11
Riley values their inventory on a first in, first out (FIFO) basis.
What was the value of closing inventory at 30 November 20X7?
A £1,316
B £1,320
C £1,380
D £1,420 LO 1d; 3a, c

21 The inventory of three items at the end of Mac plc's reporting period is as follows:
Item Cost Selling price
£ £
X 3,800 4,200
Y 4,600 4,100
Z 1,300 1,650
A 4% trade discount is offered on selling price.
What is the total value of these inventories in Mac plc's financial statements?
A £9,036
B £9,552
C £9,700
D £9,950 LO 1d; 3a, c

22 Inisca plc is unclear as to whether the following items should be included when calculating the
net realisable value of inventory held at the end of its reporting period:
(1) Trade discounts given to customers
(2) Cash discounts received from suppliers
(3) Costs to completion
(4) Selling costs
Which should be included in the calculation of net realisable value of inventory?
A (1), (2) and (3) only
B (2), (3) and (4) only
C (1), (2) and (4) only
D (1), (3) and (4) only LO 1d; 3a, c

Page 7 of 8
23 Which two of the following matters, when correctly accounted for, will result in an increase in a
business's closing inventory figure, as derived from a physical inventory count at the year end?
A Inventory taken by the proprietor for his own use
B Goods returned by customers that can be resold
C Prices have been rising during the year and the proprietor now decides to change from a last-
in, first-out (LIFO) basis of valuation to a first-in, first-out (FIFO) basis
D An allowance needs to be made against several lines of inventory

24 The cost of inventory shown in Electra plc's statement of financial position at 28 February 20X2,
valued on an average cost (AVCO) basis, was £9,250. Had the inventory been valued on a first
in, first out (FIFO) basis it would have been £10,560.
What would be the effect of adopting the FIFO valuation on Electra plc's financial statements for
the reporting period ended 28 February 20X2?
A Increase profits and decrease current assets less current liabilities by £1,310
B Increase net assets and decrease losses by £1,310
C Increase capital and decrease current assets by £1,310
D Increase current assets and increase losses by £1,310

Page 8 of 8