!

PHONE: +353 (0)1 4433 400 (tel:+353 (0)1 4433 400)

SHOPPING CART 0

(https://www.charterededucation.com/)
(https://www.charterededucation.com/store/cart/)
# No products in the cart.

IAS 2 INVENTORIES QUIZ

" Home / IFRS Quizzes (https://www.charterededucation.com/ifrs-quizzes/) /

IAS 2 Inventories Quiz

Results
0 of 26 questions answered correctly

Categories

IAS 2 — Inventories 0%

Restart quiz View questions

Which of the following costs must be expensed under IAS 2?

∠ Costs of purchase that are paid to the suppliers of raw materials

∠ Import duties on raw materials that are paid to the authorities

∠ Variable production overheads that are allocated to each unit based on actual usage

∠ Selling and distribution overheads incurred in the ordinary course of business

Incorrect
Selling costs are now allowed as a cost of inventory and must be expensed.

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 1 of 14
 Inventory cost should not include:
• abnormal waste
• storage costs
• administrative overheads unrelated to production
• selling costs
• foreign exchange differences
• interest

Which of the following items should be disclosed as per the requirements of IAS 2?

∠ Average holding period of inventories of the entity as at the end of the reporting period

∠ List of major customers to whom the inventories were sold during the reporting period

∠ Average lead time of procurement for major classes of inventories

∠ Carrying amount of inventories pledged as security for liabilities

Incorrect

Which of the following is allowed as a cost of inventory?

∠ Abnormal waste

∠ Storage costs

∠ Selling costs

∠ Variable manufacturing overheads

∠ General administration overheads

Incorrect
Variable manufacturing overheads are allowed as a cost of inventory.

Inventory cost should not include:

• abnormal waste
• storage costs
• administrative overheads unrelated to production

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 2 of 14
 • selling costs
• foreign exchange differences arising directly on the recent acquisition of inventories invoiced in
a foreign currency
• interest cost when inventories are purchased with deferred settlement terms.

Under IAS 2, fixed production overheads should be allocated to items of inventory on the basis of
____ production capacity.

∠ Actual

∠ Normal

∠ Abnormal

∠ Estimated

Incorrect
Normal capacity – This is the expected production based on past production performance under
normal circumstances.

Fixed Production overheads are those…

∠ Indirect costs of production that remain constant regardless of the volume of production

∠ Direct costs attributable to the product or service that remain constant regardless of the
volume of production

∠ Indirect costs of production that vary directly with the volume of production

∠ Direct costs attributable to the product or service that vary regardless of the volume of
production

Incorrect
These may include things such as rent and insurance.

Which of the following is not permitted as a cost of inventory?

∠ Non-recoverable taxes

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 3 of 14
∠ Shipping

∠ Fixed manufacturing overheads

∠ Storage costs

Incorrect
Storage costs are not permitted as a cost of inventory under IAS 2.

Inventory cost should include all:

• costs of purchase (including taxes, transport, shipping and handling) net of trade discounts
received
• costs of conversion (including fixed and variable manufacturing overheads) and
• other costs incurred in bringing the inventories to their present location and condition

The estimated selling price in the ordinary course of business, less any completion costs and costs
of sale is called…

∠ Present value

∠ Market value

∠ Net realisable value

∠ Fair value

Incorrect

Inventories include…

∠ Equipment used in the ordinary course of business

∠ Tangible assets lying in the store, which are intended for sale

∠ Machinery used in the production process which is for sale

∠ Materials and supplies used for maintaining property, plant and equipment

∠ Intangible assets used in the production process, but not intended for sale

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 4 of 14
 Incorrect
Inventories include assets held for sale in the ordinary course of business (finished goods), assets
in the production process for sale in the ordinary course of business (work in process), and
materials and supplies that are consumed in production (raw materials).

Inventories are stated at:

∠ Lower of cost and carrying value

∠ Lower of fair value and net realisable value

∠ Lower of cost and net realisable value

∠ Cost of production

Incorrect
Lower of cost and net realisable value

Which of the following items are excluded from the scope of IAS 2 – Inventories?

∠ Agricultural produce at the point of harvest

∠ Inventories that are stated at Net Realisable Value

∠ Assets held for sale in the ordinary course of business

∠ Inventories whose fair value is more than the cost

Incorrect
Agricultural produce at the point of harvest is dealt with under IAS 41 – Agriculture. Once the
produce is harvested, it is recorded under IAS 2.

Sticky Corp manufacturers and sells adhesive warning signs for workplaces. The stock of signs was
included in the closing inventory as of 31 December 2013 at a cost of $50 per pack.

During the final audit the auditors noted that the subsequent selling price for the inventory at 15th
January 2014 was $40 per pack. Furthermore, inquiry reveals that during the physical stock take, a
water leakage has damaged the signs and glue. Accordingly in the following week, Sticky Corp spent
a total of $15 per pack for repairing and reapplying the glue to the signs.

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 5 of 14
 The net realizable value and inventory write-down (loss) amount to…

∠ $40 and $10 respectively

∠ $25 and $25 respectively

∠ $35 and $25 respectively

∠ $30 and $15 respectively

Incorrect
Net realisable value = [$40 (selling price) minus $15 (repair cost)] = $25
Write down (loss) = [$50 (carrying amount) minus $25 (NRV)] = $25

Any amount of write-down of inventories to net realisable value should be…

∠ Treated as a deferred expense and written off based on the average inventory holding period

∠ Recognised as an expense in the period in which the write-down occurs

∠ Recognised as an expense in the subsequent period in which such write-down is warranted

∠ Recognized as a current liability in the Balance Sheet

Incorrect
Any write-down to NRV should be recognised as an expense in the period in which the write-down
occurs.

Also, any reversal should be recognised in the income statement in the period in which the
reversal occurs.

Which of the following costs are not included while computing the cost of purchase?

∠ Purchase Price

∠ Recoverable taxes

∠ Import duties

∠ Shipping costs

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 6 of 14
 Incorrect
Taxes and duties subsequently recoverable by the enterprise from the taxation authorities are not
allowable as a cost for inventory.

Shaw & Co., imported raw materials from China worth $100,000. They paid $8,000 as import duties
and $2,000 as import taxes (the import taxes were subsequently refunded by the local government).
They paid $15,000 for transportation of the materials from China and another $2,000 as port
handling charges for loading the materials at China.

Marketing expenses were $1,000 and the general administrative overheads amounted to $2,000.
What will be the value of inventories as per IAS 2?

∠ $127,000

∠ $125,000

∠ $128,000

∠ $130,000

Incorrect
Materials $100,000
Non-refundable import duties $8,000
Transportation $15,000
Handling $2,000
Total = $125,000

Marketing and selling costs, general overheads and refundable taxes are not permitted as a cost
of inventory.

The estimated selling price in the ordinary course of business less estimated cost of completion and
estimated cost of sale is called…

∠ Market value

∠ Fair value

∠ Current value

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 7 of 14
∠ Net realisable value

Incorrect

Thunder Limited had inventory with a cost of $10,000 at the end of the financial period, 31 December
2013. It estimated the net realisable value of this inventory was $9,000 at 31 December. One week
later, the inventory was sold for $7,000.

If their financial statements were finalised on 14 February 2014, what value should be assigned to
this inventory?

∠ $10,000

∠ $9,000

∠ $7,000

∠ None of these

Incorrect
$7,000. The inventory was sold just one week after the end of the financial period. The change in
value confirmed conditions existing at the end of the period. We can assume the value of this
inventory at 31 December 2013 was actually $7,000.

Inventory held in different geographical locations may use different cost models.

∠ True

∠ False

Incorrect
False – IAS 2 states the same cost model should be used for inventory having similar nature and
use to the entity. Difference in geographical location is not sufficient to justify using a different
cost model.

By allocating fixed factory overheads on normal production levels, low actual production levels will
result in greater fixed overhead allocation to each unit of production.

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 8 of 14
∠ True

∠ False

Incorrect
False – If actual production is lower than normal production, the fixed overhead allocation will be
lower than if actual output rates were used.

Inventory should be measured at the lower of cost and _____

∠ Fair value

∠ Market value

∠ Net realisable value

∠ Present value

Incorrect
Under IAS 2, inventory should be measured at the lower of cost and net realisable value.

How are unallocated overheads treated as per IAS 2?

∠ Recognise as an expense so long as there is a profit in the current period

∠ Recognise as an expense in the period in which they are incurred

∠ Treated as deferred expenditure

∠ Capitalised with the cost of inventories

Incorrect
Unallocated overheads are recognised as an expense in the period in which they are incurred.

Zippy Machines is in the business of procuring a specific type of machine and sells them to
international markets. During the year, the Company bought four machines costing $120,000,
$140,000, $130,000 and $100,000 respectively.

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 9 of 14
 During the year it sold only one machine for $140,000 and follows the FIFO method of valuation.
Which of the following statements is TRUE?

∠ The cost of Inventory is $370,000 and the cost of sales is $100,000

∠ The cost of Inventory is $390,000 and the cost of sales is $140,000

∠ The cost of Inventory is $370,000 and the cost of sales is $120,000

∠ The cost of Inventory is $370,000 and the cost of sales is $490,000

Incorrect
As Zippy Machines uses the First On, First Out (‘FIFO’) method of inventory valuation, the first
machine, costing $120,000 is the machine sold. Therefore, cost of sales is $120,000.
The remaining machines are valued using FIFO as $140,000, $130,000 plus $100,000 which is
$370,000.

Inventory excludes…

∠ Goods purchased for resale

∠ Finished goods produced

∠ Construction works in progress

∠ Raw materials

Incorrect
Construction works in progress are covered by IAS 11 – Construction Contracts.

Standard works in progress are inventories.

Unallocated fixed overheads may be applied to the inventory valuation at the end of the financial
period.

∠ True

∠ False

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 10 of 14
 Incorrect
False – Unallocated fixed overheads must be expensed in the period they were incurred.

Which of the following cost models is not permitted under IAS 2?

∠ First in, First out (‘FIFO’)

∠ Last in, Last out (‘LIFO’)

∠ Weighted Average

∠ Actual cost

Incorrect
The LIFO cost model was allowed prior to the 2003 revision of IAS 2, but is not longer permitted.

When actual production output is abnormally high, the fixed overheads allocated should be reduced.

∠ True

∠ False

Incorrect
True – This is to avoid the inventory being stated at more than its actual cost.

General storage costs must be expensed.

∠ True

∠ False

Incorrect
True – Storage costs are not related to the production of inventory, they must be expensed in the
period they are incurred.

If the storage is used in the production of the inventory, from one stage to the next, it may be
allocated to the inventory cost.

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 11 of 14
 PRODUCTS

CAP2 SFMA NOTES

(HTTPS://WWW.CHARTEREDEDUCATION.COM/PRODUCT/CAP2-
SFMA-NOTES/)
€9.00

ACCA P4 ADVANCED FINANCIAL MANAGEMENT MIND MAPS

(HTTPS://WWW.CHARTEREDEDUCATION.COM/PRODUCT/ACCA-P4-
ADVANCED-FINANCIAL-MANAGEMENT-MIND-MAPS/)
€9.00 €7.00

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 12 of 14
 ACCA P5 ADVANCED PERFORMANCE MANAGEMENT MIND MAPS
(HTTPS://WWW.CHARTEREDEDUCATION.COM/PRODUCT/ACCA-P5-
ADVANCED-PERFORMANCE-MANAGEMENT-MIND-MAPS/)
€9.00 €7.00

GUIDE TO CONSOLIDATION JOURNAL ENTRIES

(HTTPS://WWW.CHARTEREDEDUCATION.COM/PRODUCT/GUIDE-
CONSOLIDATED-JOURNAL-ENTRIES/)
⋆⋆⋆⋆⋆

€9.00

IFRS MIND MAPS

(HTTPS://WWW.CHARTEREDEDUCATION.COM/PRODUCT/IFRS-MIND-
MAPS/)
⋆⋆⋆⋆⋆

€9.00

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 13 of 14
 © 2011-2018

All rights reserved

This site uses cookies. To find out more, see our Cookies Policy
(http://charterededucation.com/cookies-policy/)

Terms & Conditions (http://charterededucation.com/terms-and-conditions/)

Chartered Education - We train accountants

, Clarence Street, Dun Laoghaire, Co. Dublin, Ireland

- Phone: +353 (0)1 4433 400 (tel:+353 (0)1 4433 400)

. E-mail: info@charterededucation.com

' ( + * +

https://www.charterededucation.com/ifrs-quizzes/ias-2-inventories-quiz/ 28/02/2019, 9?23 PM

Page 14 of 14