FA Chap 6-10

Kip deals in a single product, which is experiencing rising prices.

If Kip adopts a FIFO approach to inventory valuation, what would be the effect on his gross profit and inventory valuation compared with an average cost approach to inventory valuation?

• Higher gross profit, higher inventory valuation

• Lower gross profit, higher inventory valuation

• Higher gross profit, lower inventory valuation

• 1. D.Lower gross profit, lower inventory valuation

According to IAS 2 Inventories, which TWO of the following items are allowed to be included in the cost of inventory?

• 1. A.Trade discount

• 1. B.Import duties

• 1. C.Wastage costs

• 1. D.Carriage outwards

Vlad’s business started the year with 240 units of inventory with a value of $2,400. During the year Vlad purchased 4,800 units costing $57,600. 4,200 units were sold for $126,000.

Assuming the opening inventory was sold first, what gross profit was made by Vlad during this accounting period?

• $68,400

• 1. .$76,080

• 1. $60,720

• 1. .$75,600

Shadi has purchased an item of inventory, incurring the following costs:

Purchase price $45.00

Irrecoverable import duty $3.40

Delivery cost $2.60

A trade discount of 10% on the purchase price was given to Shadi. The item has a selling price of $51 and costs to sell of $1.

What amount should Shadi include in closing inventory to represent the value of this item of inventory?

• $43.10

• 1. $46.50

• 1. $48.40

• 1. .$50.00

The draft 20X6 statement of financial position of Vale reported retained earnings of $1,644,900 and net assets of $6,957,300. It was then discovered that several items in opening inventory had been valued at selling price. This resulted in a $300,000 overstatement of opening inventory. The closing inventory had been correctly valued in the draft 20X6 financial statements.

What are the correct figures for retained profit and net assets in the statement of financial position for 20X6?

• Retained earnings $1,644,900

  Net assets $6,657,300

• Retained earnings $1,644,900

  Net assets $6,957,300

• Retained earnings $1,944,900

  Net assets $6,657,300

• Retained earnings $1,944,900

  Net assets $6,957,300

Fred has a building that cost $650,000 fifteen years ago. It is being depreciated over a period of 50 years with nil residual value. Market conditions have significantly increased its value. An expert has revalued the building at $900,000.

What double entry needs to be carried out to reflect the revaluation?

• 1. DR Revaluation surplus $445,000

  2. CR Accumulated depreciation $195,000 CR Other income $250,000

• 1. DR Building $250,000 CR Revaluation surplus $250,000

• 1. DR Building $250,000 DR Accumulated depreciation $195,000 CR Revaluation surplus $445,000

• 1. .DR Building $445,000 CR Other income $445,000

State whether each of the following statements about the asset register is TRUE or FALSE.

• 1. The asset register provides a record of the carrying amount of each asset.

  2. 2. The asset register provides information about the financing of each asset and the balance outstanding.

• 1. True

  1. 2. False

• 1. 1. True

  2. 2. True

• 1. 1. False

  2. 2. True

• 1. 1. False

  2. 2. False

Mei part exchanged her old truck for a newer model in 20X8. The new truck cost $26,000 but Mei paid only $15,000 in cash. Mei depreciates her motor vehicles on a 20% reducing-balance basis. A full year’s depreciation charge is made in the year of purchase and none in the year of sale. Mei was disappointed that she made a loss of $1,288 because the old truck was only bought in 20X5.

Which TWO of the following statements about Mei’s motor vehicles are true?

• 1. The depreciation charge for the year ending 31 December 20X8 is $5,200

• 1. Mei paid $12,288 for her old truck

• 1. The carrying amount of the old truck at the date of disposal was $12,288

• 1. The old truck had been depreciated over four years

Joseph revalued his building to $280,000 from a carrying amount of $150,000. The building had originally cost $200,000 and is being depreciated over 40 years on a straight-line basis. Assume there is nil residual value.

What is the depreciation expense for the year following revaluation? $_____

Kin purchased an asset for $5,000 on 1 January 20X6. The asset was estimated to have a residual value of $1,000 and a useful economic life of 5 years. On 1 January 20X8 Kin realised that he had overestimated the residual value of this asset and it is now thought its final value would be $400. It is now 31 December 20X8.

Which of the following statements about the depreciation of Kin's asset is TRUE?

• 1. Kin cannot change his depreciation approach during the life of the asset

• 1. Kin will charge $1,000 depreciation for the year ended 20X8

• 1. Kin will need to restate previous year's depreciation.

• 1. Kin will charge less depreciation per year during the remainder of the asset's life.