ACCOUNTING INVENTORY THEORIES 1. Which of the following is not considered as inventory under PAS 2? A. Supplies and materials awaiting use in the production process B. Land and other property purchased and held for resale C. Costs of service for which a service provider has not yet recognized the related revenue D. Abnormal amounts of wasted materials, labor and other production costs 2. An entity shall include in its inventory all goods A. Owned but not possessed by the entity at the balance sheet date B. Owned and possessed by the entity at the balance sheet date C. Owned by the entity at the balance sheet date, regardless of location D. Possessed but not owned by the entity at the balance sheet date 3. Goods on consignment should be included in the inventory of A. The consignor but not the consignee B. Both the consignor and the consignee C. The consignee but not the consignor D. Neither the consignor nor the consignee 4. Freight and other handling charges incurred in the transfer of goods from consignor to consignee are A. Expense on the part of the consignee B. Expense on the part of the consignor C. Inventoriable by the consignee D. Inventoriable by the consignor 5. “F.O.B. destination” means that A. The freight charges are actually to be paid by the seller B. The freight charges are actually to be paid by the buyer C. The ownership of goods is transferred upon receipt of the goods by the buyer and the seller is the owner of the goods while in transit D. The ownership of the goods is transferred upon shipment of the goods by the seller and the buyer is the owner of the goods while in transit 6. The buyer actually paid the freight charges but is not legally responsible for the same A. FOB destination, freight prepaid B. FOB destination, freight collect C. FOB shipping point, freight prepaid D. FOB shipping point, freight collect 7. An entity should include one of the following items in its merchandise inventory A. Goods purchased FOB destination still en route B. Goods held for pick-up by the buyer C. Goods sold FOB shipping point still en route D. Goods purchased FOB shipping point still en route 8. In using the FIFO method of inventory costing, the ending inventories, if any, are presumed to have come from: A. Goods that have been purchased at an earlier date B. Goods that have been acquired at a later date C. Goods carried over from the prior accounting period Page | 1 D. Goods which have been damaged while stored and those goods which were subjected to shrinkage after processing, both of which are unsalable. 9. Which of these goods shall be included in the inventory of the company at the balance sheet date? A. Goods shipped to customers, FOB destination and still in transit B. Goods acquired and shipped FOB destination for which the goods have not been received by the end of the period. C. Inventories held on consignment D. Damaged and unsalable goods 10. For a merchandising company, inventory cost shall exclude A. Purchase price B. Transportation and handling costs C. Trade discounts and rebates D. Import duties and other taxes 11. For a manufacturing company, inventory cost shall include A. Abnormal waste B. Storage and selling cost C. Variable administrative overhead D. Fixed manufacturing overhead PERIODIC INVENTORY SYSTEM vs. PERPETUAL INVENTORY SYSYTEM PERIODIC PERPETUAL 12. Purchase on account 13. Freight on purchases 14. Return of merchandise purchased for cash 15. Credit sales 16. Use of stock cards: yes or no 17. Use of moving average: yes or no 18. Periodic physical count: required or optional 19. Internal control: superior or inferior 20. Peso amount: large or small 21. Turnover/Velocity: fast or slow 22. BEH Company had merchandise inventory which were then sold to its customers before the year ended. The company has appropriately made the entry to record the cost of sales under the perpetual inventory system. Consequently, the customers decided to return some of the merchandise and the same were received from the customers during the next accounting period. At the end of the current period, which is true about the company’s current asset section in its Statement of Financial Position? A. It will include the inventories returned since the customers decided for them to be returned during the current period B. It will exclude the merchandise returned since the return happened during the next period. C. Other things being constant, the current assets will never be affected by the timing of the happening of the sales return. D. The current asset section will not include any inventories. Page | 2 23. The Net Realizable Value (NRV) of an inventory is its: A. Gross profit minus the amount of operating expenses B. Estimated selling price in the ordinary course of business less estimated cost of completion and estimated cost to sell C. Actual selling price in the normal conduct of business less estimated cost of completion and estimated cost to sell D. Mark-up less estimated cost of completion and estimated cost to sell 24. Statement 1- Markdown is a reduction in the sales price below the original price Statement 2- Markdown cancelation nullifies the effect of the markdown to the extent that it may increase the sales price above the original price. A. Both statements are true C. Both statements are false B. Only statement 1 is true D. Only statement 2 is true 25. Which of the following is not true concerning trade discounts and cash discounts? A. Trade discounts are reductions from the list price and cash discounts are reductions from the invoice price. B. Trade discounts are not recorded while cash discounts are recorded. C. The purpose of trade discounts is to encourage prompt payment while cash discounts serve to encourage trading. D. When trade discounts are deducted, the resulting figure is the amount actually charged to the customer while cash discounts are allowed within the discount period. 26. Statement 1- The same e level of ending inventory would be arrived in using either FIFO-Periodic or FIFOPerpetual Statement 2- There would be no difference in the ending inventory under gross profit method even if we use a GP rate which is based on sales or based on cost. A. Both are true B. Both are false C. Only 1 is true D. Only 2 is true 27. Which of the following will occur when inventory costs are decreasing? A. LIFO will result in lower net income and lower ending inventory than FIFO. B. FIFO will result in lower net income and lower ending inventory than LIFO. C. LIFO will result in lower net income but higher ending inventory than FIFO. D. FIFO will result in lower net income but higher ending inventory than LIFO. 28. The proper cost method for inventories that are not ordinarily interchangeable and goods or services produced and segregated for specific projects is the A. Specific identification B. First-in, First-out (FIFO) C. Last-in, First-out (LIFO) D. Weighted average 29. Under the periodic inventory system, the opening stock is the A. Net purchases minus the total goods sold B. Net purchases minus the closing stock C. Total goods available for sale minus the net purchases D. Total goods available for sale minus the total goods sold 30. Which of the following pairs of inventory terms would NOT usually go together? A. Periodic inventory system & Freight-in account B. Perpetual inventory system & Cost of Goods Sold account C. Gross price method & Purchase Discount Taken account D. Net Price Method & Purchase Discount Taken account Page | 3 31. Theoretically, cash discounts permitted on purchased raw materials should be A. Added to other income, whether taken or not taken B. Added to other income, only if taken C. Deducted from inventory, whether taken or not D. Deducted from inventory, only if taken 32. Which will not require inventory estimation? A. Inventory destroyed by a major fire incident in the production facility B. Proof of the reasonable accuracy of the physical inventory count C. External and internal interim financial statements are prepared D. Year-end reporting for inventory shown on the face of the statement of financial position 33. Under the gross profit method, if the gross profit is based on sales, the cost of sales is computed as A. Gross sales divided by sales ratio B. Gross sales times cost ratio C. Net sales divided by sales ratio D. Net sales times cost ratio 34. Under the gross profit method, if the gross profit is based on cost, the cost of sales is computed as A. Net sales times cost ratio B. Net sales divided by sales ratio C. Gross sales times cost ratio D. Gross sales divided by sales ratio 35. The retail inventory method would include which of the following in the calculation of goods available for sale at both cost and retail? A. Freight-in B. Purchase returns C. Markups D. Markdowns 36. In computing cost ratio, the conservative/conventional retail method should A. Include markup and markdown B. Exclude markup and markdown C. Include markup but not markdown D. Exclude markup but not markdown 37. When a portion of inventories has been pledged as security on a loan A. An equal amount of retained earnings should be appropriated B. The fact should be disclosed but the amount of current assets should not be affected C. The value of the inventory pledged should be subtracted from the loan balance D. The cost of the pledged inventories should be transferred from current assets to non-current assets 38. The company has excluded in the ending inventory of the current period purchases that were in transit and acquired FOB shipping point. In this case, what will likely happen to the cost of sales for the next accounting period? A. Overstated C. Understated B. Unaffected D. Correctly stated Page | 4
