PAS 2

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Net realizable value for inventories may equal fair value less costs
to sell.
false
true/false?
The amount of write-down is recognized as ____________. expense
If the cost of an inventory is $7 while its net realizable value is $10
the amount of write-down is $3.
fasle
true/false?
The best evidence of net realizable value for raw materials is
replacement
_________ cost.
Reversals of inventory write-downs shall not exceed the amount
of the original write-down.
true
true/false?
Which of the following does not
belong to the group?

A. Abnormal costs
B .Conversion costs
B .Conversion costs

C. Administrative costs

D. Selling costs
Conversion cost includes the import duties, transport, handling
and other costs directly attributable to the acquisition of the in- false
ventory.
(purchase price)
true/false?
It refers to the costs necessary in converting raw materials into
finished goods. It includes the costs of direct labor, direct materials conversion cost
and production overhead.
PAS 2 recognizes that a primary issue in accounting for invento-
ries is the determination of the cost to be recognized as asset and
carried forward until it is expensed. true

true/false?
Cost formulas deal with the computation of the following except

Cost of sales

Cost of ending inventory Cost of beginning inventory

Cost of beginning inventory

Cost of goods sold

Cost formula used for inventories that are not ordinarily inter-
changeable

Weighted Average
Specific Identification
First-In, First-Out (FIFO)

Specific Identification

Last-In, First-Out (LIFO)

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 PAS 2
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The formula for the weighted average cost is total goods available
for sale in pesos over total goods available for sale in units
true
true/false?
a forecasting model that computes a forecast as the average of
demands over a number of immediate past periods;

the technique that averages a number of recent actual values,

moving average
updated as new values become available;

The weighted average may be calculated "as each additional

purchase is made" (also called _______________)
The actual level of production may be used if it __________
approximates
normal capacity.
Normal capacity is the production expected to be achieved on
average over a number of periods or seasons under normal
circumstances, taking into account the loss of capacity resulting
true
from planned maintenance.

true/false?
Cost should include all:

• costs of purchase (including taxes, transport, and handling) net

of trade discounts received

• costs of conversion (including fixed and variable manufacturing

true
overheads) and

• other costs incurred in bringing the inventories to their present

location and condition

true/false?
In the lower-of-cost-or-market approach, the estimated selling
price in the ordinary course of business, less reasonably pre-
Net Realizable Value (NRV)
dictable costs of completion and disposal. The NRV represents
the ceiling (upper limit) under LCM;
The amount of accounts receivable a business expects to collect. net realizable value
is the estimated selling price in the ordinary course of business,
less the estimated cost of completion and the estimated costs NRV
necessary to make the sale. (initial)
inventory includes work in process arising under construction
contracts

true/false?
Equipment Parts and Supplies

These refer to the equipment parts and supplies used for repair
and maintenance of the equipment. These are recognized as true
inventories because they form part in the process of production.

true/false?
commodity brokers and dealers inventories' changes in fair value
less costs to sell are recognized in ________ in the period of the profit/loss
change.
Inventory cost should not include, excpet
* abnormal waste
* storage costs
* administrative overheads unrelated to production

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 PAS 2
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* selling costs
* foreign exchange differences arising directly on the recent ac-
quisition of inventories invoiced in a foreign currency none
* interest cost when inventories are purchased with deferred
settlement terms.
In a period of rising prices, the use of FIFO relates the current
FALSE
hightrue/false?costs of acquiring goods with rising sales prices.
As a result, FIFO tends to have a stabilizing effect on gross profit
(Under FIFO, COGS is measured using the cost of the earliest
margins
purchases. Accordingly in a period of rising prices, the FIFO
method matches lower costs to rising sales prices
true/false?
FIFO provides income tax savings during periods of falling prices
true
true/false?
Inventory write-downs and reversals of write-downs are always
profit/loss
recognized in _________.

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