WorksheetsSales Tax& Inventory FA
Total questions: 27
Worksheet time: 1hrs 5mins
W is registered for sales tax. The managing director has asked four staff in the accounts department why
the output tax for the last quarter does not equal 20% of sales (20% is the rate of tax). Which one of
the following four replies she received was NOT correct?
The company had some exports that were not liable to sales tax.
The company made some sales of zero-rated products.
The company made some sales of exempt products.
The company sold some products to businesses not registered for sales tax.
The following information relates to Eva Co's sales tax for the month of March 20X3:
Sales (including sales tax) $ 109,250
Purchases (net of sales tax) $ 64,000
Sales tax is charged at a flat rate of 15%. Eva Co's sales tax account showed an opening credit balance of $4,540 at the beginning of the month and a closing debit balance of $2,720 at the end of the month.
What was the total sales tax paid to regulatory authorities during the month of March 20X3?
$ 14,910
$ 11,910
$ 12,910
$ 13,910
Alana is not registered for sales tax purposes. She has recently received an invoice for goods for resale which cost $500 before sales tax, which is levied at 15%. The total value was therefore $575.
What is the correct entry to be made in Alana's general ledger in respect of the invoice?
DEBIT Purchases $500, DEBIT Sales tax $75, CREDIT Payables $575
DEBIT Purchases $575, CREDIT Sales tax $75, CREDIT Payables $500
DEBIT Purchases $500, CREDIT Payables $500
DEBIT Purchases $575, CREDIT Payables $575
Information relating to Lauren Co's transactions for the month of May 20X4 is shown below:
Sales (including sales tax) $ 140,000*
Purchases (net of sales tax) $ 65,000
Sales tax is charged at a flat rate of 20%. Lauren Co's sales tax account had a zero balance at the
beginning of the month and at the end of the month.
* Lauren Co's sales for the month of $140,000 included $20,000 of sales exempt from sales tax.
What was the total sales tax paid to regulatory authorities at the end of May 20X4 (to the nearest $)?
$7,000
$20,000
$23,333
$13,000
A business commenced with capital in cash of $1,000. Inventory costing $800 plus sales tax is purchased on credit, and half is sold for $1,000 plus sales tax, the customer paying in cash at once. The sales tax rate is 20%.
What would the accounting equation after these transactions show?
Assets $1,800 less Liabilities $200 equals Capital $1,600
Assets $2,200 less Liabilities $1,000 equals Capital $1,200
Assets $2,600 less Liabilities $800 equals Capital $1,800
Assets $2,600 less Liabilities $1,000 equals Capital $1,600
Trade receivables and payables in the financial statements of a sales tax registered trader will appear as described by which of the following?
Inclusive of sales tax in the statement of financial position
Exclusive of sales tax in the statement of financial position
The sales tax is deducted and added to the sales tax account in the statement of financial
position
Sales tax does not appear in the statement of financial position because the business simply acts as a collector on behalf of the tax authorities
Which of the following correctly describe the entry in the sales account for a sale for a sales tax registered trader?
Credited with the total of sales made, including sales tax
Credited with the total of sales made, excluding sales tax
Debited with the total of sales made, including sales tax
Debited with the total of sales made, excluding sales tax
Sales (including sales tax) amounted to $27,612.50, and purchases (excluding sales tax) amounted to $18,000. What is the balance on the sales tax account, assuming all items are subject to sales tax at 17.5%?
$962.50 DEBIT
$962.50 CREDIT
$1,682.10 CREDIT
$1,682.10 CREDIT
The inventory value for the financial statements of Global Co for the year ended 30 June 20X3 was based on a inventory count on 7 July 20X3, which gave a total inventory value of $950,000.
Between 30 June and 7 July 20X3, the following transactions took place.
Purchase of goods $ 11,750
Sale of goods (mark up on cost at 15%) $ 14,950
Goods returned by Global Co to supplier $ 1,500
What figure should be included in the financial statements for inventories at 30 June 20X3?
$952,750
$952,740
$952,730
$952,720
Which of the following costs may be included when arriving at the cost of finished goods inventory for inclusion in the financial statements of a manufacturing company?
1. Carriage inwards
2 Carriage outwards
3. Depreciation of factory plant
4. Finished goods storage costs
5. Factory supervisors' wages
1 and 5 only
2, 4 and 5 only
1, 3 and 5 only
1, 2, 3 and 4 only
The closing inventory at cost of a company at 31 January 20X3 amounted to $284,700.
The following items were included at cost in the total:
1. 400 coats, which had cost $80 each and normally sold for $150 each. Owing to a defect in
manufacture, they were all sold after the reporting date at 50% of their normal price. Selling
expenses amounted to 5% of the proceeds.
2. 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work in
February 20X3 cost $5 per skirt, and selling expenses for the batch totalled $800. They were
sold for $28 each.
What should the inventory value be according to IAS 2 Inventories after considering the above items?
$276,400
$281,200
$282,800
$329,200
A company values its inventory using the first in, first out (FIFO) method. At 1 May 20X2 the company had 700 engines in inventory, valued at $190 each.
During the year ended 30 April 20X3 the following transactions took place:
20X2
1 July - Purchased 500 engines at $220 each
1 November - Sold 400 engines for $160,000
20X3
1 February Purchased 300 engines at $230 each
15 April Sold 250 engines for $125,000
What is the value of the company's closing inventory of engines at 30 April 20X3?
$188,500
$195,500
$166,000
None of these figures
Identify, by indicating the relevant box in the table below, whether each of the following statements about the valuation of inventory are correct or incorrect, according to IAS 2 Inventories.
1. Inventory items are normally to be valued at the higher of cost and net realisable value
2. The cost of goods manufactured by an entity will include materials and labour
only. Overhead costs cannot be included
3. LIFO (last in, first out) cannot be used to value inventory.
4. Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable approximation to
actual cost.
1&2 - incorrect
3&4 - correct
2&4- Incorrect
1&3- correct
1&4-incorrect
2&3- correct
2&3-incorrect
1&4- correct
A company with an accounting date of 31 October carried out a physical check of inventory on 4 November 20X3, leading to an inventory value at cost at this date of $483,700.
Between 1 November 20X3 and 4 November 20X3 the following transactions took place:
1. Goods costing $38,400 were received from suppliers.
2. Goods that had cost $14,800 were sold for $20,000.
3. A customer returned, in good condition, some goods which had been sold to him in October for
$600 and which had cost $400.
4 . The company returned goods that had cost $1,800 in October to the supplier, and received a
credit note for them.
What figure should appear in the company's financial statements at 31 October 20X3 for closing
inventory, based on this information?
$458,700
$505,900
$508,700
$461,500
In preparing its financial statements for the current year, a company's closing inventory was understated by $300,000.
What will be the effect of this error if it remains uncorrected?
The current year's profit will be overstated and next year's profit will beunderstated.
The current year's profit will be understated but there will be no effect on next year's profit.
The current year's profit will be understated and next year's profit will be overstated.
The current year's profit will be overstated but there will be no effect on next year's profit.
The financial year of Mitex Co ended on 31 December 20X1. An inventory count on January 4 20X2 gave a total inventory value of $527,300.
The following transactions occurred between January 1 and January 4.
Purchases of goods - $ 7,900
Sales of goods (gross profit margin 40% on sales) - $ 15,000
Goods returned to a supplier - 800
What inventory value should be included in Mitex Co's financial statements at 31 December 20X1?
$525,400
$527,600
$529,200
$535,200
Which of the following statements about IAS 2 Inventories is correct?
Production overheads should be included in cost on the basis of a company's normal level of activity in the period.
In determining the cost of inventories, trade discounts received must be deducted and selling
costs must be added.
In arriving at the cost of inventories, FIFO, LIFO and weighted average cost formulas are
acceptable.
It is permitted to value finished goods inventories at materials plus labour cost only, without adding production overheads.
You are preparing the financial statements for a business. The cost of the items in closing inventory is $41,875. This includes some items which cost $1,960 and which were damaged in transit. You have estimated that it will cost $360 to repair the items, and they can then be sold for $1,200.
What is the correct inventory valuation for inclusion in the financial statements?
$39,915
$40,755
$41,515
$42,995
S sells three products – Basic, Super and Luxury. The following information was available at the year end
What is the value of inventory at the year end?
$4,200
$4,700
$5,700
$6,150
2 An inventory record card shows the following details.
February 1 - 50 units in stock at a cost of $40 per unit
7 - 100 units purchased at a cost of $45 per unit
14 - 80 units sold
21 = 50 units purchased at a cost of $50 per unit
28 - 60 units sold
What is the value of inventory at 28 February using the FIFO method?
$2,450
$2,700
$2,950
D $3,000
IAS 2 Inventories defines the items that may be included in computing the cost of an inventory of finished goods manufactured by a business.
Which one of the following lists consists only of items which may be included in the cost of inventories, according to IAS 2?
Supervisor's wages, carriage inwards, carriage outwards, raw materials
Raw materials, carriage inwards, costs of storage of finished goods, plant depreciation
Plant depreciation, carriage inwards, raw materials, Supervisor's wages
Carriage outwards, raw materials, Supervisor's wages, plant depreciation
The closing inventory of X amounted to $116,400 excluding the following two inventory lines:
1. 400 items which had cost $4 each. All were sold after the reporting period for $3 each, with selling expenses of $200 for the batch.
2. 200 different items which had cost $30 each. These items were found to be defective at the end of the reporting period. Rectification work after the statement of financial position amounted to $1,200, after which they were sold for $35 each, with selling expenses totalling $300.
Which of the following total figures should appear in the statement of financial position of X for inventory?
$122,300
$121,900
$122,900
$123,300
The inventory value for the financial statements of Q for the year ended 31 December 20X4 was based on an inventory count on 4 January 20X5, which gave a total inventory value of $836,200.
Between 31 December and 4 January 20X5, the following transactions took place:
Purchases of goods $ 8,600
Sales of goods (profit margin 30% on sales) $14,000
Goods returned by Q to supplier $700
What adjusted figure should be included in the financial statements for inventories at 31 December 20X4?
$838,100
$853,900
$818,500
$834,300
A company has decided to switch from using the FIFO method of inventory valuation to using the average cost method (AVCO).
In the first accounting period where the change is made, opening inventory valued by the FIFO method was $53,200. Closing inventory valued by the AVCO method was $59,800
Total purchases and during the period were $136,500. Using the continuous AVCO method, opening inventory would have been valued at $56,200.
What is the cost of materials that should be included in the statement of profit or loss for the period?
$129,900
$132,900
$135,900
$140,100
Which one of the following statements about the use of a continuous inventory system is INCORRECT?
In a retail organisation, a continuous inventory system can be used to keep track of the quantity of each stock item available in its distribution centres
Under continuous inventory, the cost of each receipt of inventory and the cost of each issue from inventory is recorded individually
A continuous inventory system removes the need for periodic physical inventory counts.
Both the FIFO and average cost (AVCO) methods of pricing inventory may be used within a continuous inventory system
The information below relates to inventory item Z.
March 1 - 50 units held in opening inventory at a cost of $40 per unit
17 - 50 units purchased at a cost of $50 per unit
31 - 60 units sold at a selling price of $100 per unit
Under AVCO, what is the value of inventory held for item Z at the end of March 31?
$4,000
$1,800
$2,000
$2,500
A firm has the following transactions with its product R.
1 January 20X1 = Opening inventory: nil
1 February 20X1 = Buys 10 units at $300 per unit
11 February 20X1 = Buys 12 units at $250 per unit
1 April 20X1 - Sells 8 units at $400 per unit
1 August 20X1 - Buys 6 units at $200 per unit
1 December 20X1 - Sells 12 units at $400 per unit
The firm uses periodic weighted average cost (AVCO) to value its inventory.
What is the inventory value at the end of the year? (Give your answer to 2 decimal places)
$2,057.12
$2,057.13
$2,057.14
$2,057.15
