Inventory IAS2

IAS 2 standard relates to......

• Accounting for financial instruments.

• Accounting for inventories

• Investment in Associates

• Subsidiaries

What is inventory

• a complete list of items such as property, goods in stock, or the contents of a building

• present economic resource controlled by an entity as a result of past event

• acid test ratio

• everything that the business have

Which of the following does the cost of Inventory comprise?

• Cost of purchase

• Cost of conversion

• Costs incurred in bring the inventories to their present location

• All of the above

Q1: A company purchases inventory with a cost of R10 000 on credit. Please select the correct journal entry.

• Option A

• Option B

• Option C

• None of the options provided.

Q2: AppleLeaf (Pty) Ltd is a well-known retailer that specializes in selling a specific type of green chairs. They purchased 100 of these green chairs from a manufacturer in the UK at a price of £100 each which was correctly translated to R2 000 per chair on the 1 January 2020.

Import duties of R100 000 were incurred and the cost of transportation of the green chairs to AppleLeaf’s warehouse cost R10 000. AppleLeaf also incurred R8 000 administrative overheads. The manufacturer gave AppleLeaf a trade discount of £10 on each green chair which was correctly translated to R200 per chair.

Ignore VAT implications. AppleLeaf has a 30 June year end.

Calculate the cost at which the inventory will initially be recognized in AppleLeaf’s financial records.

• R310 000

• R318 000

• R290 000

• R282 000

Q3: Kangaroo Ltd (Kangaroo) manufactures and sells sports boats. Their normal capacity is 1 000 boats per year and total cost of production is R200 000 per one boat, before fixed overhead allocation.

Kangaroo pays the factory production manager a salary of R1 000 000 per year.

Kangaroo produced 1 200 boats instead of 1 000 because of huge once-off order in the 2022 financial year.

Kangaroo considers production that exceeds 10% of normal production abnormally high production.

Calculate the total cost per unit of inventory:

• R200 000

• R201 000

• R200 909

• R200 833

• Some other amount.

Q4: XYZ Ltd sells inventory worth R34 000 to Mr Xaba, who pays cash for the inventory on the date of purchase. XYZ applies a markup of 20% on the cost of inventory.

How will the journal entry look?

• Option A

• Option B

• Option C

• None of the options provided.

what is FIFO inventory method?

• is an accounting method in which assets purchased or acquired LAST are disposed of FIRST

• is an accounting method in which assets purchased or acquired first are disposed of first

• An accounting method that requires one to use the average

• it is a method that is applicable to all scenarios in accounting

What is Weighted Average Method?

• Cost less accumulated depreciation, multiply by the useful life.

• IT USES ONLY PERPETUAL INVENTORY SYSTEM AND DISREGARD OTHER METHORDS.

• IT ONLY USES THE PERIODIC INVENTORY SYSTEM AND DISREGARD OTHER METHORDS.

• is mainly utilized to assign the average cost of production to a given product.

Cost of sales is

• the revenue generated from selling inventory

• the value of inventory recorded in the inventory cards

• net profit minus Expenses

• sum of expenses incurred when inventory is sold