Chapter # 7 Inventory

1. On 1 January 2016, the Grand Union Food Stores had goods in inventory valued at Rs.6,000. During 2016 its
proprietor purchased supplies costing Rs.50,000. Sales for the year to 31 December 2016 amounted to
Rs.80,000. The cost of goods in inventory at 31 December 2016 was Rs.12,500. What is the gross profit for the
year?
a. Rs.36,500 b. Rs.36,000
c. Rs.35,500 d. Rs.s37,000
2. Gross profit for 2017 can be calculated from:
a. Purchases for 2017, plus inventory at 31 December 2017, less inventory at 1 January 2017
b. Purchases for 2017, less inventory at 31 December 2017, plus inventory at 1 January 2017
c. Cost of goods sold during 2017, plus sales during 2017
d. Profit for the year for 2017, plus expenses for 2017
3. The following figures relate to inventory held at the year end
Particulars A B C
Cost 20 9 12
Selling Price 30 12 22
Modification Cost to Enable Sale - 2 8
Marketing Cost 7 2 2
The value of inventory held is?
a. Rs.8,000 b. Rs.8,500
c. Rs.8,800 d. Rs.8,900
4. How is closing inventory incorporated in the financial statements?
a. DEBIT: statement of profit or loss CREDIT: statement of financial position
b. DEBIT: statement of financial position CREDIT: statement of profit or loss
5. An item of inventory was purchased for Rs.10. However, due to a fall in demand, its selling price will be only
Rs.8. In addition, further costs will be incurred prior to sale of Rs.1. What is the NRV?
a. Rs.7 b. Rs.8
c. Rs.10 d. Rs.11
6. When valuing inventory, the following methods are available
1. FIFO
2. AVCO
3. LIFO
4. Standard Cost
Which methods are allowable under IAS 2 Inventories?
a. 1, 2, 3 b. 1, 2, 3, 4
c. 1 only d. 1, 2
7. What is included in the cost of purchase of inventories according to IAS 2?
a. Purchase price less trade discount
b. Purchase price plus transport costs less trade discount
c. Purchase price less import duties less trade discount
d. Purchase price plus import duties plus transport costs less trade discount
8. The inventory value for the financial statements of Global Co for the year ended 30 June 2013 was based on an
inventory count on 7 July 2013, which gave a total inventory value of Rs.950,000. Between 30 June and 7 July
2016, the following transactions took place.
Purchase of goods Rs.11,750
 Sale of goods (mark up on cost at 15%) Rs.14,950
Goods returned by Global Co to supplier Rs.1,500
What figure should be included in the financial statements for inventories at 30 June 2013?
a. Rs.952,750 b. Rs.949,750
c. Rs.926,750 d. Rs.958,950
9. 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
a. 1 and 5 only b. 2, 4 and 5 only
c. 1, 3 and 5 only d. 1, 2, 3 and 4 only
10. The closing inventory at cost of a company at 31 January 2013 amounted to Rs.284,700. The following items
were included at cost in the total:
1. 400 coats, which had cost Rs.80 each and normally sold for Rs.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 Rs.20 each. These too were found to be defective. Remedial work in
February 2013 cost Rs.5 per skirt, and selling expenses for the batch totaled Rs.800. They were sold for
Rs.28 each
What should the inventory value be according to IAS 2 Inventories after considering the above items?
a. Rs.281,200 b. Rs.282,800
c. Rs.329,200 d. None of these
11. A company values its inventory using the first in, first out (FIFO) method. At 1 May 2012 the company had 700
engines in inventory, valued at Rs.190 each. During the year ended 30 April 2013 the following transactions took
place:
2012
1 July Purchased 500 engines at Rs.220 each
1 Nov Sold 400 engines for Rs.160,000
2013
1 Feb Purchased 300 engines at Rs.230 each
15 April Sold 250 engines for Rs.125,000
What is the value of the company's closing inventory of engines at 30 April 2013?
a. Rs.188,500 b. Rs.195,500
c. Rs.166,000 d. None of these figures
12. Which of the following statements about the valuation of inventory are correct, according to IAS 2
1. Inventory items are normally to be valued at the higher of cost and net realizable value.
2 The cost of goods manufactured by an entity will include materials and labor 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.
a. 1, 3 and 4 only b. 1 and 2 only
c. 3 and 4 only d. None of these
13. A company with an accounting date of 31 October carried out a physical check of inventory on 4
November 2013, leading to an inventory value at cost at this date of Rs.483,700. Between 1 November
2013 and 4 November 2013 the following transactions took place:
1 Goods costing Rs.38,400 were received from suppliers.
2 Goods that had cost Rs.14,800 were sold for Rs.20,000.
3 A customer returned, in good condition, some goods which had been sold to him in
October for Rs.600 and which had cost Rs.400.
4 The company returned goods that had cost Rs.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 2013 for closing
inventory, based on this information?
a. Rs.458,700 b. Rs.505,900
c. Rs.508,700 d. Rs.461,500
14. In preparing its financial statements for the current year, a company's closing inventory was understated
by Rs.300,000. What will be the effect of this error if it remains uncorrected?
a. The current year's profit will be overstated and next year's profit will be understated.
b. The current year's profit will be understated but there will be no effect on next year's profit.
c. The current year's profit will be understated and next year's profit will be overstated.
d. The current year's profit will be overstated but there will be no effect on next year's profit.
15. The financial year of Mitex Co ended on 31 December 2011. An inventory count on January 4 2012 gave a total
inventory value of Rs.527,300.
The following transactions occurred between January 1 and January 4.
Purchases of goods Rs.7,900
Sales of goods (gross profit margin 40% on sales) Rs.15,000
Goods returned to a supplier Rs.800
What inventory value should be included in Mitex Co.’s financial statements at 31 December 2011?
a. Rs.525,400 b. Rs.527,600
c. Rs.529,200 d. Rs.535,200
16. Which of the following statements about IAS 2 Inventories is correct?
a. Production overheads should be included in cost on the basis of a company's normal level of activity in the
period.
b. In arriving at the net realizable value of inventories, trade discounts and settlement discounts must be
deducted
c. In arriving at the cost of inventories, FIFO, LIFO and weighted average cost formulas are acceptable.
d. It is permitted to value finished goods inventories at materials plus labor cost only, without adding
production overheads
17. You are preparing the financial statements for a business. The cost of the items in closing inventory is Rs.41,875.
This includes some items which cost Rs.1,960 and which were damaged in transit. You have estimated that it will
cost Rs.360 to repair the items, and they can then be sold for Rs.1,200. What is the correct inventory valuation
for inclusion in the financial statements?
a. Rs.39,915 b. Rs.40,755
c. Rs.41,515 d. Rs.42,995
18. S sells three products – Basic, Super and Luxury. The following information was available at the year end.
Particulars Basic Super Luxury
Original Cost Rs.6 Rs.9 Rs.18
Estimated Selling Price Rs.9 Rs.12 Rs.15
 Selling and Distribution Cost Rs.2 Rs.4 Rs.5
Units Held 200 units 250 units 150 units
What is the value of inventory at the year end?
a. Rs.4,200 b. Rs.4,700
c. Rs.5,700 d. Rs.6,150
19. An inventory record card shows the following details
February 1 50 units in stock at a cost of Rs.40 per unit
February 7 100 units purchased at a cost of Rs.45 per unit
February 14 80 units sold
February 21 50 units purchased at a cost of Rs.50 per unit
February 28 60 units sold
What is the value of inventory at 28 February using the FIFO method?
a. Rs.2,450 b. Rs.2,700
c. Rs.2,950 d. Rs.3,000
20. IAS 2 Inventories defines the items that may be included in computing the value 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 statement of financial position value of such inventories, according to IAS 2?
a. Supervisor's wages, carriage inwards, carriage outwards, raw materials
b. Raw materials, carriage inwards, costs of storage of finished goods, plant depreciation
c. Plant depreciation, carriage inwards, raw materials, Supervisor's wages
d. Carriage outwards, raw materials, Supervisor's wages, plant depreciation
21. The closing inventory of X amounted to Rs.116,400 excluding the following two inventory lines:
1. 400 items which had cost Rs.4 each. All were sold after the reporting period for Rs.3 each, with selling
expenses of Rs.200 for the batch.
2. 200 different items which had cost Rs.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 Rs.1,200,
after which they were sold for Rs.35 each, with selling expenses totaling Rs.300.
Which of the following total figures should appear in the statement of financial position of X for inventory?
a. Rs.122,300 b. Rs.121,900
c. Rs.122,900 d. Rs.123,300
22. The inventory value for the financial statements of Q for the year ended 31 December 2014 was based on an
inventory count on 4 January 2015, which gave a total inventory value of Rs.836,200. Between 31 December and
4 January 2015, the following transactions took place:
Purchases of goods Rs.8,600
Sales of goods (profit margin 30% on sales) Rs.14,000
Goods returned by Q to supplier Rs.700
What adjusted figure should be included in the financial statements for inventories at 31 December 2014?
a. Rs.838,100 b. Rs.853,900
c. Rs.818,500 d. Rs.834,300
23. 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 Rs.53,200. Closing inventory valued by the AVCO method was Rs.59,800. Total purchases and
during the period were Rs.136,500. Using the continuous AVCO method, opening inventory would have been
valued at Rs.56,200. What is the cost of materials that should be included in the statement of profit or loss for
the period?
a. Rs.129,900 b. Rs.132,900
c. Rs.135,900 d. Rs.140,100
24. Which one of the following statements about the use of a continuous inventory system is INCORRECT
a. In a retail organization, a continuous inventory system can be used to keep track of the quantity of each
stock item available in its distribution centers.
b. Under continuous inventory, the cost of each receipt of inventory and the cost of each issue from inventory is
recorded individually.
c. A continuous inventory system removes the need for periodic physical inventory counts.
d. Both the FIFO and average cost (AVCO) methods of pricing inventory may be used within a continuous
inventory system.
25. The information below relates to inventory item Z.
March 1 50 units held in opening inventory at a cost of Rs.40 per unit
March 17 50 units purchased at a cost of Rs.50 per unit
March 31 60 units sold at a selling price of Rs.100 per unit
Under AVCO, what is the value of inventory held for item Z at the end of March 31?
a. Rs.4,000 b. Rs.1,800
c. Rs.2,000 d. Rs.2,500
26. A firm has the following transactions with its product R.
1 January 2011 Opening inventory: nil
1 February 2011 Buys 10 units at Rs.300 per unit
11 February 2011 Buys 12 units at Rs.250 per unit
1 April 2011 Sells 8 units at Rs.400 per unit
1 August 2011 Buys 6 units at Rs.200 per unit
1 December 2011 Sells 12 units at Rs.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?
a. Rs.Nil b. Rs.2,057.12
c. Rs.2,400.00 d. Rs.2,007.20
27. An item of inventory could be sold for Rs.100 after it has been modified at a cost of Rs.21. The company incurs
selling and distribution costs of 5% of selling price on each article sold. The cost is Rs.45 per unit excluding
carriage inwards of Rs.2 and production overheads of Rs.17 per unit. Following the rules in IAS 2 at what
valuation should this item be included in the inventories of the company?
a. Rs.62 b. Rs.64
c. Rs.74 d. Rs.79
28. Harrow Co sells one line of inventory. At the year-end it has 200 units in inventory which originally cost Rs.10 per
unit and had incurred delivery costs of Rs.120 in total. They expect these goods to sell for Rs.13 per unit. Harrow
Co incurs selling costs amounting to 10% of the selling price on all its sales. In the balance sheet these items
should be valued at:
a. Rs.2,000 b. Rs.2,080
c. Rs.2,120 d. Rs.2,600
29. Lamp makes the following purchases in the year.
Particulars Units Rs/Unit Total (Rs.)
21-Jan-19 100 12.00 1200
30-Apr-19 300 12.50 3750
31-Jul-19 40 12.80 512
1-Sep-19 60 13.00 780
 11-Nov-19 80 13.50 1080
At the year-end 200 units are in inventory but eight are damaged and are only worth Rs.10 per unit. These are
identified as having been part of the 11.11.X9 delivery. Lamp operates a FIFO system for valuing inventories. The
figure for inventories at 31 December 2019 is:
a. Rs.2,524 b. Rs.2,594
c. Rs.2,622 d. Rs.2,700
30. At the year end, Biggs Co holds the following inventories:
1. 10 units of L in a completed state; each unit cost Rs.160 to make and has a selling price of Rs.200.
2. 45 units of M in a partly completed state. Costs to date have amounted to Rs.240 per unit and
completion costs will amount to Rs.90 per unit. Selling price per unit is Rs.360.
3. 60 units of N purchased for Rs.40 each. These sell at Rs.56 each and would now cost Rs.48 each if
additional units were bought.
4. 50 units of O costing Rs.10 each. These cannot be sold unless they are modified at a cost of Rs.2 per unit.
After that, the selling price will be Rs.8.
The company’s selling costs are 25% of the selling price. The value of inventories that would be shown on the
balance sheet at the end of the year will be:
a. Rs.12,200 b. Rs.12,000
c. Rs.10,500 d. Rs.10,300
31. What would be the effect on a business’ profit, which has been calculated including inventory at cost, of
discovering that one of its inventory items which cost Rs.7,500 has a net realizable value of Rs.8,500?
a. an increase of Rs.8,500 b. an increase of Rs.1,000
c. no effect at all d. a decrease of Rs.1,000
32. An item of inventory was purchased for Rs.500. It is expected to be sold for Rs.1,200 although Rs.250 will need
to be spent on it in order to achieve the sale. To replace the same item of inventory would cost Rs.650. At what
value should this item of inventory be included in the financial statements?
a. Rs.500 b. Rs.950
c. Rs.1,200 d. Rs.250
33. Appleby buys and sells inventory during the month of August as follows:
Date Particulars No of Units Rs/unit
1-Aug Op. stock 100 2.52
4-Aug Sales 20
8-Aug Purchase 140 2.56
10-Aug Sales 90
18-Aug Purchase 200 2.78
20-Aug Sales 180
Which one of the following statements is true?
a. Closing inventory is Rs.19.50 higher when using the FIFO method instead of the periodic weighted average
b. Closing inventory is Rs.19.50 lower when using the FIFO method instead of the periodic weighted average.
c. Closing inventory is Rs.17.50 higher when using the FIFO method instead of the periodic weighted average
d. Closing inventory is Rs.17.50 lower when using the FIFO method instead of the periodic weighted average
34. In the year ended 31 August 2014, Aplus’ records show closing inventory of 1,000 units compared to 950 units of
opening inventory. Which of the following statements is true assuming that prices have fallen throughout the
year?
a. Closing inventory and profit are higher using FIFO rather than AVCO
b. Closing inventory and profit are lower using FIFO rather than AVCO
c. Closing inventory is higher and profit lower using FIFO rather than AVCO
 d. Closing inventory is lower and profit higher using FIFO rather than AVCO
35. David performs an inventory count on 30 December 2016 ahead of the 31 December year end. He counts 1,200
identical units, each of which cost Rs.50. On 31 December, David sold 20 of the units for Rs.48 each. What figure
should be included in David’s statement of financial position for inventory at 31 December 2016?
a. Rs.56,600 b. Rs.65,640
c. Rs.56,640 d. Rs.65,640
36. Which of the following statements about the treatment of inventory and work in progress in financial
statements are correct?
1. Inventory should be valued at the lower of cost, net realizable value and replacement cost.
2. In valuing work in progress, materials costs, labor costs and variable and fixed production overheads
must be included.
3. Inventory items can be valued using either first in, first out (FIFO) or weighted average cost.
4. An entity’s financial statements must disclose the accounting policies used in measuring inventories
a. All four statements are correct b. 1, 2 and 3 only are correct
c. 2, 3 and 4 only are correct d. 1 and 4 only are correct
37. Kiera’s interior design business received a delivery of fabric on 29 June 2016 and was included in the inventory
valuation at 30 June 2016. As at 30 June 2016, the invoice for the fabric had not been accounted for. Based upon
the available information, what effect(s) will this have on Kiera’s profit for the year ended 30 June 2016 and the
inventory valuation at that date?
1. Profit for the year ended 30 June 2016 will be overstated.
2. Inventory at 30 June 2016 will be understated.
3 Profit for the year ended 30 June 2017 will be overstated.
4 Inventory at 30 June 2016 will be overstated.
a. 1 and 2 b. 2 and 3
c. 1 only d. 1 and 4
38. What journal entry is required to record goods taken from inventory by the owner of a business for personal
use?
a. Dr. Drawings Cr. Purchases b. Dr. Sales Cr. Drawings
c. Dr. Drawings Cr. Inventory d. Dr. Inventory Cr. Drawings
39. A business had an opening inventory of Rs.180,000 and a closing inventory of Rs.220,000 in its financial
statements for the year ended 31 December 2015. Which of the following accounting entries are required to
account for opening and closing inventory when preparing the financial statements of the business?
Debit Credit
a. Inventory 180,000
P&L 180,000
P&L 220,000
Inventory 220,000
b. P&L 180,000
Inventory 180,000
Inventory 220,000
P&L 220,000
c. Inventory 40,000
Purchases 40,000
d. Purchases 40,000
Inventory 40,000
40. Ajay’s annual inventory count took place on 7 July 2016. The inventory value on this date was Rs.38,950. During
the period from 30 June 2016 to 7 July 2016, the following took place:
Sales Rs.6,500
Purchases Rs.4,250
The mark up is 25% on cost. What is Ajay’s inventory valuation at 30 June 2016?
Rs._____________________
41. Inventory movements for product X during the last quarter were as follows: Opening inventory at 1 January was
6 items valued at Rs.15 each.
January Purchases 10 items at Rs.19.80 each
February Sales 10 items at Rs.30 each
March Purchases 20 items at Rs.24.50
Sales 5 items at Rs.30 each
What was gross profit for the quarter, if inventory is valued using the continuous weighted average cost
method?
Rs._______________________
42. Your firm values inventory using the periodic weighted average cost method. At 1 October 2018, there were 60
units in inventory valued at Rs.12 each. On 8 October, 40 units were purchased for Rs.15 each, and a further 50
units were purchased for Rs.18 each on 14 October. On 21 October, 75 units were sold for Rs.1,200. What was
the value of closing inventory at 31 October 2018?
Rs._______________________
43. Percy Pilbeam is a book wholesaler. On each sale, commission of 4% is payable to the selling agent. The
following information is available in respect of total inventories of three of his most popular titles at his financial
year-end:
Cost Rs. Selling price Rs.
Henry VII – Shakespeare 2,280 2,900
Dissuasion – Jane Armstrong-Siddeley 4,080 4,000
Pilgrim’s Painful Progress – John Bunion 1,280 1,300
What is the value of these inventories in Percy’s statement of financial position?
a. Rs.7,368 b. Rs.7,400
c. Rs.7,560 d. Rs.7,640
44. An organization’s inventory at 1 July was 15 units at a cost of Rs.3.00 each. The following movements occur:
3 July 2014 5 units sold at Rs.3.30 each
8 July 2014 10 units bought at Rs.3.50 each
12 July 2014 8 units sold at Rs.4.00 each
What was the value of closing inventory at 31 July, if the FIFO method of inventory valuation is used?
a. Rs.31.50 b. Rs.36.00
c. Rs.39.00 d. Rs.41.00
45. What would be the effect on an entity’s profit for the year of discovering that inventory with cost of Rs.1,250
and a net realizable value of Rs.1,000 had been omitted from the original inventory valuation?
a. An increase of Rs.1,250 b. An increase of Rs.1,000
c. A decrease of Rs.250 d. No effect at all
46. In times of rising prices, the valuation of inventory using the first in, first out method, as opposed to the
weighted average cost method, will result in which ONE of the following combinations?
Cost of Sales Profit Closing Inventory
a. Lower Higher Higher
b. Lower Higher Lower
c. Higher Lower Higher
d. Higher Higher Lower
47. If an entity uses the periodic weighted average cost method to value closing inventory, which of the following
statements is true?
a. Unit average cost is recalculated each time there is a purchase of inventory
b. Unit average cost is recalculated each time there is a sale of goods
c. Unit average cost is calculated once only at the end of an accounting period
d. Unit average cost is recalculated each time there is a purchase or a sale
48. If an entity uses the continuous weighted average cost method to value closing inventory, which of the following
statements is true?
a. Unit average cost is recalculated each time there is a purchase of inventory
b. Unit average cost is calculated once only at the end of an accounting period
c. Unit average cost is recalculated each time there is a sale of goods
d. Unit average cost is recalculated each time there is a purchase or a sale
49. If an entity uses the continuous weighted average cost method to value closing inventory, what is the value of
closing inventory based upon the following information?
2 Feb Purchased 10 units at a cost of Rs.5.00 per unit
5 Feb Sold 6 units at a price of Rs.8 per unit
7 Feb Purchased 10 units at a cost of Rs.6.50 per unit
Rs._____________________
50. If an entity uses the periodic weighted average cost method to value closing inventory, what is the value of
closing inventory based upon the following information?
12 Apr Purchased 10 units at a cost of Rs.5.00 per unit
15 Apr Sold 6 units at a price of Rs.8 per unit
17 Apr Purchased 10 units at a cost of Rs.6.50 per unit
Rs.____________________
51. In preparing its financial statements for the current year, a company’s closing inventory was understated by
Rs.200,000. What will be the effect of this error if it remains uncorrected?
a. The current year’s profit will be overstated and next year’s profit will be understated
b. The current year’s profit will be understated and next year’s profit will be overstated
c. The current year’s profit will be understated but there will be no effect on next year’s profit
d. The current year’s profit will be overstated but there will be no effect on next year’s profit
52. Which of the following cost should be deducted from Revenue to arrive at gross profit and what is accounting
concept behind this?
a. Cost of goods purchased AND Prudence b. Cost of goods produced AND Matching concept
concept
c. Cost of goods sold AND Prudence concept d. Cost of goods sold AND Matching concept
53. Which of the following is included in the cost of purchases?
a. Administrative Salaries b. Abnormal loss
c. Freight in d. Rent of store
54. At 01 December 2018 Nida had opening inventory of Rs.20,000 and at 31 December 2018 Nida had closing
inventory of Rs.35,000. Which of the following entries are required to account for opening and closing inventory
when preparing financial statements of the business?
a. Dr. Cost of sales Rs.20,000 Cr Inventory Rs.20,000 and Dr. Inventory Rs.35,000 Cr Cost of sales Rs.35,000
b. Dr. Cost of sales Rs.35,000 Cr Inventory Rs.35,000 and Dr. Inventory Rs.20,000 Cr Cost of sales Rs.20,000
c. Dr. Cost of sales Rs.20,000 Dr. Inventory Rs.20,000 and Dr. Inventory Rs.35,000 Dr. Cost of sales Rs.35,000
d. Cr Cost of sales Rs.35,000 Cr Inventory Rs.35,000 and Cr Inventory Rs.20,000 Cr Cost of sales Rs.20,000
55. Maria had opening inventory of 900 units at Rs.5 unit at 01 January 2019. During the month she made following
purchases and sales transactions:
January 05 Purchased 1,000 units at Rs.6 per unit
January 09 Sold 1,250 units
January 15 Purchased 600 units at Rs.7 per unit
January 28 Sold 550 units
Maria uses periodic weighted average cost method for inventory valuation. What is value of closing inventory at
31 January 2019?
a. Rs.4,800 b. Rs.4,116
c. Rs.6,468 d. None of the above
56. The accounting concept that requires valuation of Inventory at lower of cost and net realizable value is?
a. Accrual b. Materiality
c. Prudence d. Going concern
57. Which of the following costs are included in conversion costs?
a. Commission of selling staff b. Carriage in
c. Carriage outwards d. Supervisor’s wages
58. What is impact on closing inventory if an item having cost of Rs.2,500 and a net realizable value of Rs.3,000 has
been omitted from year - end inventory count?
a. Understated by Rs.2,500 b. Understated by Rs.3,000
c. Overstated by Rs.2,500 d. Understated by Rs.500
59. If closing inventory is accounted for as Rs.240,000 instead of Rs.180,000 then;
a. Gross profit as well as net profit will be exaggerated
b. Gross profit and net profit would both be understated
c. Gross profit will be exaggerated, and net profit understated
d. Gross profit will be exaggerated but net profit correctly reported
60. An organization had opening inventory of 35,000 units @Rs.3.5 per unit. During the month it made purchases of
40,000 units @Rs.5 per unit. Sales were 50,000 units. What is value of cost of goods sold during the month if the
company uses continuous weighted average method for inventory valuation?
a. Rs.107,500 b. Rs.215,000
c. Rs.197,500 d. Rs.75,000
61. After preparing draft accounts, Saima reviews her closing inventory. She discovers that some items included at
cost of Rs.2,600 can be sold for Rs.2,550 after incurring selling costs of Rs.65. What effect will any required
adjustment have on Saima’s profits?
a. Profit decreases by Rs.65 b. Profit decreases by Rs.115
c. No change to profit d. Profit decreases by Rs.50
62. Ali had opening inventory of Rs.1,500,000. Purchases made during the period were Rs.2,550,000. Sales during
the period were Rs.4,500,000 and he had closing inventory of Rs.1,000,000. Gross profit for the period was?
a. Rs.1,950,000 Profit b. Rs.450,000 Profit
c. Rs.1,450,000 Profit d. Rs.550,000 Loss
63. What is correct entry for goods taken by owner for personal use?
a. Cr Purchases account and Dr. Drawings account with the cost price of the goods.
b. Cr Opening Inventory account and Dr. Drawings account with cost price of the goods.
c. Cr Trading account and Dr. Drawings account with the selling price of the goods
d. Cr Sales account and Dr. Drawings account with the sale price of the goods
64. Tasweeb Corporation sells three products – Alpha, Beta and Gamma. The following information was available at
the year-end:
Alpha Beta Gamma
----------Rs./unit-----------
Original Cost 10 13 15
Estimated Selling Price 15 14 14
Selling And Distribution Cost 3 5 2
Inventory Units Held 300 Units 380 Units 240 Units
The value of inventory at the end of year should be?
a. Rs.8,300 b. Rs.5,700
c. Rs.9,300 d. Rs.6,150
65. The following information is related to a mobile dealer about his inventory at year end.
Mobile Set Cost (Rs.) Net Realizable Value (Rs.)
A 5,000 3,300
B 13,000 13,500
C 14,200 13,900
D 14,900 15,000
What value of inventory should be shown in his Statement of Financial Position prepared at the year end?
a. Rs.39,800 b. Rs.45,900
c. Rs.40,000 d. Rs.45,100
66. On 1st July 2018, Imad had opening inventory of 50 units at a cost of Rs.60 per unit. During July 2018 he has
made following purchases and sales:
July 09 120 units purchased at a cost of Rs.65 per unit
July 16 65 units sold
July 24 45 units purchased at a cost of Rs.67 per unit
July 30 100 units sold
What is the value of inventory at 31 March using the FIFO method?
Rs._______________________
67. During August, Anum had sales of Rs.158,000, which made a gross profit of Rs.45,000. Purchases amounted to
Rs.101,000 and opening inventory was Rs.34,000. The value of closing inventory was?
Rs._______________________
68. The closing stock of Daniel amounts to Rs.130,200. But later on it was discovered that some damaged items
were included having cost of Rs.25,000. Total repair cost is expected to be Rs.3,500. After repair these could be
sold for Rs.18,000. What is the correct value of Daniel inventory?
Rs._______________________
69. Following is the detail of inventory of Hamid at December 31, 2018:
Product Cost (Rs.) Net Realizable Value (Rs.)
A 15,000 17,000
B 12,000 10,000
C 13,500 11,000
D 12,600 14,000

What value of inventory should be shown by the corporation in its Statement of Financial Position at year end?
Rs.________________________
70. Tahir and Taha are doing partnership business. The net profit earned by their business during the year ended
Dec 31 2008 is Rs.250,000. In subsequent year it was realized that the ending inventory of year 2007 was
overstated by Rs.10,000. By what amount the profit for the year 2008 is understated?
Rs.__________________________
71. Which of the following cost models is not permitted under IAS 2?
a. First in, First out (‘FIFO’) b. Last in, Last out (‘LIFO’)
c. Weighted Average d. Actual cost
72. Which of the following items are excluded from the scope of IAS 2 – Inventories?
a. Inventories that are stated at Net Realizable Value
b. Assets held for sale in the ordinary course of business
c. Inventories whose fair value is more than the cost
d. Agricultural produce at the point of harvest
73. Which of the following is not permitted as a cost of inventory?
a. Non-recoverable taxes b. Storage costs
c. Shipping d. Fixed manufacturing overheads
74. Which of the following items should be disclosed as per the requirements of IAS 2?
a. Average holding period of inventories of the entity as at the end of the reporting period
b. List of major customers to whom the inventories were sold during the reporting period
c. Carrying amount of inventories pledged as security for liabilities
d. Average lead time of procurement for major classes of inventories
75. A company sold goods of worth Rs.1 million, the manufacturing cost of the goods were Rs.600,000. The carriage
outwards is Rs.50,000 and commission paid to agent were also Rs.50,000. What is the gross and net profit?
a. Gross profit = 600,000 and net profit = 250,000 b. Gross profit = 300,000 and net profit = 200,000
c. Gross profit = 400,000 and net profit = 300,000 d. Gross profit = 350,000 and net profit = 300,000
76. Bazooka Limited (BL) manufacturers and sells office equipment for workplaces. The stock of equipment was
included in the closing inventory as of 31 December 2019 at a cost of Rs.50,000 per equipment. During the final
audit, the auditors noted that the subsequent selling price for the inventory at 15th January 2020 was Rs.40,000
per item. Furthermore, inquiry reveals that during the physical stock take, a water leakage has damaged the
equipment. Accordingly, in the following week, BL spent a total of Rs.15,000 per equipment for repairing the
equipment. The net realizable value and inventory write-down (loss) amount to?
a. Rs.40,000 and Rs.10,000 respectively b. Rs.25,000 and Rs.25,000 respectively
c. Rs.35,000and Rs.25,000 respectively d. Rs.30,000 and Rs.15,000 respectively
77. Which of the following is allowed as a cost of inventory?
a. Abnormal waste b. Storage costs
c. Selling costs d. Variable manufacturing overheads
78. Spice Limited, imported raw materials from China worth Rs.10 million. They paid Rs.800,000 as import duties
and Rs.200,000 as import taxes (the import taxes were subsequently refunded by the government). They paid
Rs.150,000 million for transportation of the materials from China and another Rs.200,000 as port handling
charges for loading the materials at China. Marketing expenses were Rs.100,000 and the general administrative
overheads amounted to Rs.200,000. What will be the value of inventories?
a. Rs.11,600,000 b. Rs.11,400,000
c. Rs.11,150,000 d. Rs.10,950,000
79. Any amount of write-down of inventories to net realizable value should?
a. Treated as a deferred expense and written off based on the average inventory holding period
b. Recognized as an expense in the period in which the write-down occurs
c. Recognized as an expense in the subsequent period in which such write-down is warranted
d. Recognized as a current liability in the statement of financial position
 80. Phil Morris Limited (PML) is in the business of procuring a specific type of machine and sells them to
international markets. During the year, PML bought four machines costing Rs.12million ,Rs.14 million, Rs.13
million and Rs.10 million respectively. During the year it sold only one machine for Rs.14 million and follows the
FIFO method of valuation. Which of the following statements is TRUE?
a. The cost of Inventory is Rs.37 million and the cost of sales is Rs.10 million
b. The cost of Inventory is Rs.39 million and the cost of sales is Rs.14 million
c. The cost of Inventory is Rs.37million and the cost of sales is Rs.12 million
d. The cost of Inventory is Rs.37 million and the cost of sales is Rs.13 million

Answers
1 2 3 4 5 6 7 8 9 10
A C C B A D D A C A
11 12 13 14 15 16 17 18 19 20
A C D C C A B B C C
21 22 23 24 25 26 27 28 29 30
C A B C B B B C B A
31 32 33 34 35 36 37 38 39 40
C A A B C C C A B Rs.39,900
41 42 43 44 45 46 47 48 49 50
Rs.155 Rs.1,110 A D B A C A Rs.85 Rs.80.5
51 52 53 54 55 56 57 58 59 60
B D C A B C D A A B
61 62 63 64 65 66 67 68 69 70
B C A C D Rs.3,340 Rs.22,000 Rs.119,700 Rs.48,600 Rs.10,000
71 72 73 74 75 76 77 78 79 80
B D B C C B D C B C