INVENTORIES

Net realizable value of inventories may fall below cost for a number of reasons including:

i. Product obsolescence

ii. Physical deterioration of inventories

iii. An increase in the expected replacement costs of the inventory

iv. An increase in the estimated costs of completion and costs to sell

• I, II and IV only

• I, III and IV only

• II, III and IV only

• I and II only

Which of the following represents the best justification for valuing the inventories at the lower of cost and net realizable value?

• It is easier to keep track of market value than it is to keep track of cost as market value is available from available from any suppliers

• Cost loses its relevance for the determination of cost of goods sold if the cost of inventory has been incurred in an earlier accounting period.

• The practice of writing inventories below cost to net realizable value is consistent with the view that assets should not be carried in excess of amount expected to be realized from their sale or use

• The balance sheet valuation of inventory is the most important consideration in the preparation of financial statements.

The amount of any write-down of inventory to net realizable value and losses of inventory shall be

• Recognized as operating expense in the period the write-down or loss occurs.

• Recognized as other operating expense in the period the write-down or loss occurs.

• Recognized as component of cost of sales in the period the write down or loss occurs.

• Deferred until the related inventory is sold.

Inventories are usually written down to net realizable value

• by classification

• by total

• by segment

• item by item

When using a perpetual inventory system

• no Purchase account is used

• wo entries are required to record a sale

• a Cost of goods sold account is used

• all of these

When using a periodic inventory method, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

• Trade discounts applicable to purchases during the period.

• Cash discounts taken during the period

• Purchase returns and allowances of merchandise during the period.

• Cost of transportation in for merchandise purchases during the period.

A company using periodic inventory system neglected to record a purchase of merchandise on account at year- end. This merchandise was omitted from year-end physical count. How will these errors affect inventory at year-end and cost of goods sold for the year.

• no effect; understate

• no effect; overstate

• understate; understate

• understate; no effect

The cost of inventories that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be measured using

• FIFO

• Average method

• LIFO

• specific identification

When using the moving average method of inventory valuation, a new unit cost must be computed after each

• purchase

• purchase and issuance from inventory

• issuance from inventory

• month-end

During period of rising prices, when the FIFO inventory cost flow method is used, a perpetual inventory system would

• not be permitted

• result in the same ending inventory as a periodic inventory system

• result in a higher ending inventory than a periodic inventory system

• result in a lower ending inventory than a periodic inventory system