Mirchawala’s Hub Of Accountancy:

FA2:Inventory Valuation:
Question No. 01
According to IAS 2 Inventories inventory must be valued at the lower of cost and net realizable value.
Which of the following can be included in cost?
1) Cost of Purchase
2) Cost of selling
3) Cost of conversion
4) Cost of storage
A. (i) and (ii)
B. (i) and (iii)
C. (ii) and (iv)
D. (ii) and (iii)
Question No. 02
The following records were kept for an inventory item in December.
December
01 100 units in inventory at $10 each
05 50 units bought at $10 each
12 60 units sold
20 20 units bought at $8 each
29 80 units sold
The value of inventory at December 31st using FIFO is:
A. $300
B. $260
C. $340
D. $220
Question No. 03
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. Inventory Cr Drawings
Question No. 04
If an entity uses the perpetual 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
Question No. 05
Which of the following is the correct definition of net realizable value, in accordance with IAS 2
Inventories?
A. Selling price
B. Selling price less estimated cost to completion
C. Selling price less selling costs
D. Selling price less estimated cost to completion and selling costs

From the Desk of Sir Mustafa Ahmad Mirchawala:

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Question No. 06
Which of the following are acceptable methods of valuing inventory in accordance with IAS 2
Inventories?
(i) First in, first out
(ii)Last in, first out
(iii)Periodic weighted average
(iv)Continuous weighted average
A. (i),(iii) and (iv)
B. (ii),(iii) and (iv)
C. (i) and (ii) only
D. (iii) and (iv) only
Question No. 07
Scarlett is preparing the final accounts 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. She has
estimated that it will cost $360 to repair the items, and that they can then be sold for $1,200.
What is the correct inventory valuation for inclusion in the final accounts?
A. $39,915
B. $40,755
C. $41,515
D. $42,995
Question No.08
Apple runs a clothes shop selling replica football kits and valued his entire inventory at 31 March 20X8 at
its cost of $15,550.Inventory includes 50 of the last season’s football kits which originally cost $30 and
were on sale during the year for $50 each. However, now that new kits are out for the coming season,
Apple knows he will have to reduce the old kits to half price in order to sell them.
The correct value for inventory at 31 March 20X8 is:
A. $14,050
B. $15,300
C. $15,550
D. $16,550
Question No.09
On 1 September 20X8, John had inventory of $380,000.During the month, sales totaled $650,000 and
purchases $480,000. On 30th September 20X8 a fire destroyed some of the inventory.
The undamaged goods were valued at $220,000. The business operates with a standard gross profit
margin of 30%.
Based on this information, what is the cost of the inventory destroyed In the fire?
A. $185,000
B. $140,000
C. $405,000
D. $360,000
Question No.10
Zara’s financial year end is 30 June 20X6.However,the annual Inventory count took place on 7 July
20X6.The inventory value on that date was $38,950.During the period from 30 June 20X6 to 7 July
20X6,the following transactions took place:
Sales $6,500
Purchases $4,250
Sales are made at a mark-up on cost of 25%

From the Desk of Sir Mustafa Ahmad Mirchawala:

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What is Zara’s inventory value at 30 June 20X6?

A. $36,700
B. $41,200
C. $39,900
D. $38,000
Question No.11
Which method of inventory valuation is used when issues are assumed to be taken from inventory in
the order in which they were received?
A. Net realizable value
B. First in First out
C. Periodic weighted average
D. Continuous weighted average
Question No.12
What is the net releasable value of the following item?
$
Selling price 18.00
Packaging costs 2.00
Delivery costs 3.00
A. $16.00
B. $15.00
C. $13.00
D. $18.00
Question No.13
How should a loss of stock by theft be recorded?
Debit Credit
A. Inventory account Profit and loss account
B. Profit and loss account Inventory account
C. Suspense account Stock account
D. Stock account Suspense account
Question No. 14
In the year to 31 May 20X9 Carol’s sales were $174,820, and her Cost of sales was $139,856.Thevalue of
her opening inventory was$11,844 and the value of her closing inventory was $13,328.
What was the value of her purchases?
A. $138,372
B. $141,340
C. $173,336
D. $176,304
Question No.15
Janet valued her inventory at 30 June at its cost of $22,960. This includes some items which cost $1,950
which have been difficult to sell. Janet intends to have these items repacked at a cost of $400. She can
then sell them for $900
What will be the value of closing inventory in Janet’s at 30 June____?
Question No.16
Run started trading a year ago. She sells her products at a mark-up of 30%. In the first year of trading
she bought goods for $25,800. Her sales in the year were $30,888
What is the value of Run’s closing inventory_____?

From the Desk of Sir Mustafa Ahmad Mirchawala:

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 Mirchawala’s Hub Of Accountancy:

Question No.17
Which of the following statements regarding inventory valuation is correct?
A. The purchase price of items which have been held for the longest period is an acceptable method
for valuing inventory
B. Inventory should be valued at anticipated selling price less any cost which will be incurred
C. All items held in inventory should be valued at cost
D. Inventory valuation should exclude profit that has not yet been earned
Question No.18:
S sells three products Basic ,Super and Luxury. The following information was available at the year end
Basic Super Luxury
$ per unit $ per unit $ per unit
Original cost 6 9 18
Estimated selling price 9 12 15
Selling and distribution cost 1 4 5
Units Units Units
Units of inventory 200 250 150
What is the value of inventory at year end?
A. $4,200
B. $4,700
C. $5,700
D. $6,150
Question No.19:
Henry made an error when he calculated the value of his closing Inventory, which means that the
inventory is over-valued .
How is his net profit for the year and his net assets at the end of the year affected by this error?
Net Profit Net Assets
A. Overstated Understated
B. Overstated Overstated
C. Understated Understated
D. Understated Overstated
Question No.20:
Which TWO of the following statements about IAS 2 Inventories are correct?
A. Average cost and last in first out (LIFO) are both acceptable methods of arriving at the cost of
inventory
B. Variable production overheads should not be included in the cost of inventory
C. Inventory should be valued at the lower of cost and net realizable value
D. The costs of purchase of inventory should include any import duties paid, less any trade discounts
received

From the Desk of Sir Mustafa Ahmad Mirchawala:

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