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Wiley IFRS: Practical Implementation Guide and Workbook
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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.
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.