IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

Answer: (c) The net realizable value is the subse– quent sale price, $40, less any cost incurred to bring the good to its salable condition, $15. Thus, NRV= $40 - $15 = $25 per pack. The loss (inven– tory write-down) per pack is the difference be– tween cost and net realizable value: $50 - $25= $25 per pack.

MULTIPLE-CHOICE QUESTIONS 1. Inventory should be stated at

(a) Lower of cost and fair value. (b) Lower of cost and net realizable value. (c) Lower of cost and nominal value. (d) Lower of cost and net selling price.

(e) Choices band d. (f) Choices a and c. (g) Choices a, b, and d.

Answer: (b) 2. Which of the following costs of conversion can– not be included in cost of inventory? (a) Cost of direct labor. (b) Factory rent and utilities. (c) Salaries of sales staff (sales department shares the building with factory supervisor). (d) Factory overheads based on normal ca– pacity. Answer: (c) 3. Inventories are assets (a) Used in the production or supply of goods and services for administrative purposes. (b) Held for sale in the ordinary course of business. (c) Held for long-term capital appreciation. (d) In the process of production for such sale. (e) In the form of materials or supplies to be consumed in the production process or the rendering of services. (f) Choices band d. (g) Choices b, d, and e. Answer: (g) 4. The cost of inventory should not include (a) Purchase price. (b) Import duties and other taxes. (c) Abnormal amounts of wasted materials. (d) Administrative overhead. (e) Fixed and variable production overhead. (f) Selling costs. (g) Choices c, d, and f. Answer: (g) 5. ABC LLC manufactures and sells paper enve– lopes. The stock of envelopes was included in the closing inventory as of December 31,2005, at a cost of $50 each per pack. During the final audit, the auditors noted that the subsequent sale price for the inventory at January 15,2006, was $40 each per pack. Furthermore, inquiry reveals that during the physical stock take, a water leakage has created damages to the paper and the glue. Accordingly, in the following week, ABC LLC spent a total of $15 per pack for repairing and reapplying glue to the envelopes. The net realizable value and inventory write-down (loss) amount to

(a) $40 and $10 respectively . (b) $45 and $10 respectively . (c) $25 and $25 respectively. (d) $35 and $25 respectively. (e) $30 and $15 respectively.

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