Caila Nicole Reyes

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BSA-1
FINANCIAL ACCOUNTING AND REPORTING

PAS 2 - INVENTORY

1. Inventories are assets defined by all of the following, except

a. Held for sale in the ordinary course of business.
b. In the process of production for such sale
c. In the form of materials or supplies to be consumed in the production process or
the rendering or services
d. Used in the production or supply of goods and services for administrative
purposes.

2. Which inventory of a manufacturer is similar to the merchandise inventory of a

retailer?
a. Raw materials c. Finished goods
b. Work in process d. Supplies

3. Which of the following should be taken into account when determining the cost of
inventory?
a. Storage cost of part-finished goods c. Recoverable purchase tax
b. Abnormal freight in d. Interest on inventory loan

4. The allocation of fixed production overhead to the cost of conversion is based on

a. Normal capacity of production facilities
b. Actual use of production facilities
c. Either the normal capacity or actual use of production facilities
d. Relative sales value method

5. When determining the unit cost of an inventory item, which of the following should
not be included?
a. Interest on loan obtained to purchase the item.
b. Commission paid when purchased
c. Labor cost of the item when manufactured
d. Depreciation of plant equipment used in manufacturing the item.

6. The cost of purchase of inventory does not include

a. Purchase price
b. Import duties and taxes
c. Freight, handling and other cost directly attributable to acquisition
d. Trade discount, rebate and other similar item

7. Fixed production overheads include all of the following, except

a. Depreciation of factory building
b. Cost of factory management and administration
c. Maintenance of factory building and equipment
d. Indirect materials and indirect labor
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8. Which of the following items should be included in a company’s inventory at the end
of the reporting period?
a. Goods in transit, which were purchased, FOB destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer, which are being held for the customer to call for at the
customer’s convenience.
d. Goods in transit, which were purchased FOB shipping point.

9. Which of the following items should be excluded from a company’s inventory at the
end of the reporting period?
a. Goods lost while in transit, which were purchased FOB shipping point.
b. Goods held by customers on approval or on trial
c. Goods out on consignment
d. Goods in transit purchased FOB shipping point

10. When using the periodic inventory method, which of the following generally would
not be separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation-in for merchandise purchases during the period

11 An entry debiting inventory and crediting cost of goods sold would be made when
a. Merchandise is sold and the periodic system is used.
b. Merchandise is sold and the perpetual system is used.
c. Merchandise is returned and the perpetual system is used.
d. Merchandise is returned and the periodic system is used.

12. Net realizable value is

a. Current replacement cost
b. Estimated selling price
c. Estimated selling price less estimated cost to complete
d. Estimated selling price less estimated cost to complete and estimated cost to sell

13. The lower of cost of NRV for inventories may be applied to total inventory, to groups
of similar items or to each item. Which application generally results in the lowest
inventory amount?
a. Separately to each item
b. Total inventory
c. Groups of similar item
d. All applications result in the same amount

14. LCNRV
a. Gives the lowest valuation if applied to total inventory.
b. Gives the lowest valuation if applied to major groups of inventory
c. Gives the lowest valuation if applied to individual items of inventory
d. Must be applied to major groups for tax purposes.
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15. The amount of any writedown of inventory to net realizable value and all losses of
inventory shall be
a. Recognized as operating expense in the period the writedown or loss occurs.

b. Recognized as other expense in the period the writedown or loss occurs.

c. Recognized as component of cost of sales in the period the writedown or loss
occurs.
d. Deferred until the related inventory is sold.

16. Which of the following is not an acceptable basis for valuation of inventories in
published financial statements?
a. Historical cost
b. Prime cost
c. Standard cost
d. Current selling price less cost to complete and cost to sell

17. Theoretically, freight and warehousing costs incurred in the transfer of consigned
goods from the consignor to the consignee should be considered
a. An expense by the consignor
b. Inventoriable by the consignor
c. An expense by the consignee
d. Inventoriable by the consignee

18. All of the following costs should be charged against revenue in the period, except
a. Manufacturing overhead costs for a product manufactured and sold in an
accounting period.
b. Costs that will not benefit any future period.
c. Costs from idle manufacturing capacity resulting from an unexpected plant
shutdown.
d. Costs of normal shrinkage and scrap incurred for the manufacture of a product in
ending inventory.

19. An exception to the general rule that costs should be charged to expense in the
period incurred is
a. Factory overhead costs incurred on a product manufactured but not sold during
the current period.
b. Interest costs for financing of inventories that are routinely manufactured in large
quantities on a repetitive basis.
c. General and administrative fixed costs incurred in connection with the purchase
of inventory.
d. Sales commission and salary costs incurred in connection with the sale of
inventory.

20. The use of a discounts lost account implies that the recorded cost of a purchased
inventory item is its
a. Invoice price
b. Invoice price plus the purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether taken or not
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21. The credit balance that arises when a net loss in a purchase commitment is
recognized should be
a. Presented as a current liability
b. Subtracted from ending inventory
c. Presented as an appropriation of retained earnings
d. Presented in the income statement

22. “Bill and hold” sales, in which delivery is delayed at the buyer’s request but the
buyer assumes title and accepts invoicing, should be recognized when
a. The buyer makes an order
b. The seller starts manufacturing the goods.
c. The title has been transferred but the goods are kept on the seller’s premises.
d. It is probable that the delivery will be made, payment terms have been
established, and the buyer has acknowledged the delivery instructions.

23. This method is often used for convenience for measuring inventories of large
number of rapidly changing items with similar margins for which it is impracticable to
use other costing methods.
a. Standard cost methods c. Gross profit method
b. Retail method d. Relative sales price method

24. An inventory method which is designed to approximate inventory valuation at the

lower of cost or market is
a. Last-in, first-out. c. Conventional retail method.
b. First-in, first-out. d. Specific identification.

25. The use of the gross profit method assumes

a. The amount of gross profit is the same as in prior years.
b. Sales and cost of goods sold have not changed from previous years.
c. Inventory values have not increased from previous years.
d. The relationship between selling price and cost of goods sold is similar to prior
years.

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