Question Tag: IAS 2

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  • 14 Marks

CR – May 2023 – L3 – Q2a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Analyze Octopus Petroleum’s performance and ability to finance future oil spill costs

Octopus Petroleum PLC is a multinational oil and gas group operating in the Niger Delta areas of Nigeria. The company has been highly profitable over the years. The group explores and extracts natural resources, holds reserves, and has recently become involved in the downstream sector by opening various commercial retail outlets for the sale of petrol to motorists.

In June 2020, the company was involved in an ecological disaster in the Ogoni area of Niger Delta as a result of massive oil spillage due to some technical faults, thereby resulting in spilling oil into the surrounding ocean and damaging wildlife and local communities.

Investors are concerned about the future prospects of Octopus Petroleum PLC and whether it represents a safe investment since the company normally operates in the lucrative oil and gas sector.

Octopus Petroleum Group annual report for the year 2020 and its comparative figures are shown below:

Octopus Petroleum Group Consolidated Statement of Profit or Loss for the Year Ended December 31

Octopus Petroleum Group Consolidated Statement of Financial Position as at December 31

Additional Information:

  1. The N3,700 million provision for the Ogoni oil spill is an estimated cost net of relevant tax.
  2. Calculating the financial cost of the oil spill in Ogoni land has been slightly problematic. However, N530 million had been expended by year-end, while the future costs of clean-up and compensation are undetermined.
  3. One uncertain cost is fines payable to the Federal Government of Nigeria. Past fines have exceeded N2,500 million.
  4. Octopus Petroleum Group vertically integrated in 2020 by acquiring and rebranding petrol stations.
  5. Oil reserves were at record-high levels in 2020.
  6. Oil prices increased by approximately 5% during 2020.
  7. The company values inventory on a last-in-first-out (LIFO) basis, which contravenes IAS 2.
  8. Dividend payments remained at N625 million for both 2020 and 2019.
  9. Investors typically evaluate companies using these ratios:
    • Profitability Ratios:
      • Return on Capital Employed (ROCE)
      • Return on Equity (ROE)
      • Gross Profit Percentage
      • Operating Profit Percentage
    • Liquidity Ratios:
      • Current Ratio
      • Acid Test Ratio
    • Resource Utilization and Financial Position Ratios:
      • Inventory Turnover
      • Asset Turnover
      • Interest Cover
      • Gearing Ratio

Required:

(a) Analyze the performance of Octopus Petroleum Group over the two-year period. Your analysis should also consider the group’s ability to finance the cost of the oil spill in Ogoni land in the coming years. (14 Marks)

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  • 15 Marks

FR – May 2024 – L2 – SA – Q6 – Inventory Accounting

Explains perpetual inventory system, differences in inventory counting, and disclosure requirements.

a. IAS 2 – Inventories sets out the requirements to be followed when accounting for inventory and specifies two methods of recording inventory to allow the calculation of cost of sales.

Required:
i. Explain the term ‘Perpetual inventory system’ and identify FIVE possible causes of differences between the balance on the inventory account and the physical inventory counted. (5 Marks)

ii. State the disclosure requirements for inventory in notes to the financial statements. (5 Marks)

b. Many accountants believe that Block-Chain Technology will enhance the recording of financial transactions globally.

Required:
Explain the term “Block-Chain Technology” and state THREE disadvantages of adopting the technology. (5 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q28 – Accounting for Inventories (IAS 2)

Identifying the accounting concept that guides the treatment of known losses and inventory valuation.

Borox Limited makes provision for all known losses and values its inventories at the lower of cost and net realizable value. Which accounting concept is the company complying with?

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  • 1 Marks

FA – May 2012 – L1 – SA – Q13 – Accounting for Inventories (IAS 2)

Identifying the best method for inventory valuation according to IAS 2.

According to International Accounting Standard No 2 on “Inventories”, which of the following methods can best be employed for the calculation and valuation of inventories?

A. Last purchase price
B. Last-In-First-Out
C. Base stock
D. Average cost
E. Replacement cost

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q12 – Accounting for Inventories (IAS 2)

Identifies the costs to be included in inventory valuation under IAS 2 for a manufacturing company.

In accordance with IAS 2 – Inventories, which of the following costs should be included in the valuation of inventories of a manufacturing company?
A. Carriage outwards
B. Carriage inwards
C. General administrative overheads
D. Depreciation of land and buildings
E. Discount allowed

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  • 7 Marks

FR – Nov 2021 – L2 – Q3c – Inventory Accounting (IAS 2)

Enumerate the disclosure requirements for inventories under IAS 2 in financial statements.

IAS 2 – Inventories sets out the requirements to be followed when accounting for inventories.

Required:
Enumerate seven disclosure requirements for inventories to be shown in the notes to the financial statements.

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  • 5 Marks

FA – May 2014 – L1 – SA – Q1c – Accounting for Inventories in Accordance with IAS 2

why (IAS 2) on inventories is not applicable to construction contracts

Explain why International Accounting Standard (IAS 2) on inventories is not applicable to construction contracts.

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  • 5 Marks

FA – May 2014 – L1 – SA – Q1b – Accounting for Inventories in Accordance with IAS 2

costs to include and exclude when measuring inventory cost under IAS 2.

List the costs which should be included when measuring the cost of inventories and identify any cost which should be excluded.

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  • 5 Marks

FA – May 2014 – L1 – SA – Q1a – Accounting for Inventories in Accordance with IAS 2

Definition of inventories

Explain the term “inventories” as defined by International Accounting Standard (IAS 2).

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  • 1 Marks

FA – May 2014 – L1 – SA – Q2 – Accounting for Inventories in Accordance with IAS 2

Identifies costs included in inventory valuation under IAS 2.

According to IAS 2 on inventories, which of the following costs should be included in valuing the inventories of a manufacturing company?
A. Carriage inwards
B. Carriage outwards
C. General administrative overheads
D. Depreciation of land and building
E. Discount allowed

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  • 14 Marks

CR – May 2023 – L3 – Q2a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Analyze Octopus Petroleum’s performance and ability to finance future oil spill costs

Octopus Petroleum PLC is a multinational oil and gas group operating in the Niger Delta areas of Nigeria. The company has been highly profitable over the years. The group explores and extracts natural resources, holds reserves, and has recently become involved in the downstream sector by opening various commercial retail outlets for the sale of petrol to motorists.

In June 2020, the company was involved in an ecological disaster in the Ogoni area of Niger Delta as a result of massive oil spillage due to some technical faults, thereby resulting in spilling oil into the surrounding ocean and damaging wildlife and local communities.

Investors are concerned about the future prospects of Octopus Petroleum PLC and whether it represents a safe investment since the company normally operates in the lucrative oil and gas sector.

Octopus Petroleum Group annual report for the year 2020 and its comparative figures are shown below:

Octopus Petroleum Group Consolidated Statement of Profit or Loss for the Year Ended December 31

Octopus Petroleum Group Consolidated Statement of Financial Position as at December 31

Additional Information:

  1. The N3,700 million provision for the Ogoni oil spill is an estimated cost net of relevant tax.
  2. Calculating the financial cost of the oil spill in Ogoni land has been slightly problematic. However, N530 million had been expended by year-end, while the future costs of clean-up and compensation are undetermined.
  3. One uncertain cost is fines payable to the Federal Government of Nigeria. Past fines have exceeded N2,500 million.
  4. Octopus Petroleum Group vertically integrated in 2020 by acquiring and rebranding petrol stations.
  5. Oil reserves were at record-high levels in 2020.
  6. Oil prices increased by approximately 5% during 2020.
  7. The company values inventory on a last-in-first-out (LIFO) basis, which contravenes IAS 2.
  8. Dividend payments remained at N625 million for both 2020 and 2019.
  9. Investors typically evaluate companies using these ratios:
    • Profitability Ratios:
      • Return on Capital Employed (ROCE)
      • Return on Equity (ROE)
      • Gross Profit Percentage
      • Operating Profit Percentage
    • Liquidity Ratios:
      • Current Ratio
      • Acid Test Ratio
    • Resource Utilization and Financial Position Ratios:
      • Inventory Turnover
      • Asset Turnover
      • Interest Cover
      • Gearing Ratio

Required:

(a) Analyze the performance of Octopus Petroleum Group over the two-year period. Your analysis should also consider the group’s ability to finance the cost of the oil spill in Ogoni land in the coming years. (14 Marks)

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  • 15 Marks

FR – May 2024 – L2 – SA – Q6 – Inventory Accounting

Explains perpetual inventory system, differences in inventory counting, and disclosure requirements.

a. IAS 2 – Inventories sets out the requirements to be followed when accounting for inventory and specifies two methods of recording inventory to allow the calculation of cost of sales.

Required:
i. Explain the term ‘Perpetual inventory system’ and identify FIVE possible causes of differences between the balance on the inventory account and the physical inventory counted. (5 Marks)

ii. State the disclosure requirements for inventory in notes to the financial statements. (5 Marks)

b. Many accountants believe that Block-Chain Technology will enhance the recording of financial transactions globally.

Required:
Explain the term “Block-Chain Technology” and state THREE disadvantages of adopting the technology. (5 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q28 – Accounting for Inventories (IAS 2)

Identifying the accounting concept that guides the treatment of known losses and inventory valuation.

Borox Limited makes provision for all known losses and values its inventories at the lower of cost and net realizable value. Which accounting concept is the company complying with?

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  • 1 Marks

FA – May 2012 – L1 – SA – Q13 – Accounting for Inventories (IAS 2)

Identifying the best method for inventory valuation according to IAS 2.

According to International Accounting Standard No 2 on “Inventories”, which of the following methods can best be employed for the calculation and valuation of inventories?

A. Last purchase price
B. Last-In-First-Out
C. Base stock
D. Average cost
E. Replacement cost

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  • 1 Marks

FA – Nov 2020 – L1 – SA – Q12 – Accounting for Inventories (IAS 2)

Identifies the costs to be included in inventory valuation under IAS 2 for a manufacturing company.

In accordance with IAS 2 – Inventories, which of the following costs should be included in the valuation of inventories of a manufacturing company?
A. Carriage outwards
B. Carriage inwards
C. General administrative overheads
D. Depreciation of land and buildings
E. Discount allowed

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  • 7 Marks

FR – Nov 2021 – L2 – Q3c – Inventory Accounting (IAS 2)

Enumerate the disclosure requirements for inventories under IAS 2 in financial statements.

IAS 2 – Inventories sets out the requirements to be followed when accounting for inventories.

Required:
Enumerate seven disclosure requirements for inventories to be shown in the notes to the financial statements.

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  • 5 Marks

FA – May 2014 – L1 – SA – Q1c – Accounting for Inventories in Accordance with IAS 2

why (IAS 2) on inventories is not applicable to construction contracts

Explain why International Accounting Standard (IAS 2) on inventories is not applicable to construction contracts.

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  • 5 Marks

FA – May 2014 – L1 – SA – Q1b – Accounting for Inventories in Accordance with IAS 2

costs to include and exclude when measuring inventory cost under IAS 2.

List the costs which should be included when measuring the cost of inventories and identify any cost which should be excluded.

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You're reporting an error for "FA – May 2014 – L1 – SA – Q1b – Accounting for Inventories in Accordance with IAS 2"

  • 5 Marks

FA – May 2014 – L1 – SA – Q1a – Accounting for Inventories in Accordance with IAS 2

Definition of inventories

Explain the term “inventories” as defined by International Accounting Standard (IAS 2).

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  • 1 Marks

FA – May 2014 – L1 – SA – Q2 – Accounting for Inventories in Accordance with IAS 2

Identifies costs included in inventory valuation under IAS 2.

According to IAS 2 on inventories, which of the following costs should be included in valuing the inventories of a manufacturing company?
A. Carriage inwards
B. Carriage outwards
C. General administrative overheads
D. Depreciation of land and building
E. Discount allowed

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