Question Tag: IAS 2

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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

Question

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:

The N3,700 million provision for the Ogoni oil spill is an estimated cost net of relevant tax.
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.
One uncertain cost is fines payable to the Federal Government of Nigeria. Past fines have exceeded N2,500 million.
Octopus Petroleum Group vertically integrated in 2020 by acquiring and rebranding petrol stations.
Oil reserves were at record-high levels in 2020.
Oil prices increased by approximately 5% during 2020.
The company values inventory on a last-in-first-out (LIFO) basis, which contravenes IAS 2.
Dividend payments remained at N625 million for both 2020 and 2019.
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)

Answer

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Tags: Environmental Issues, Gearing, IAS 2, IAS 37, Liquidity Ratios, Oil Spill Costs, Profitability Ratios
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

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

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

Question

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)

Answer

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Tags: Cost measurement, Disclosure Requirements, IAS 2, Inventories, Perpetual Inventory System
Level: Level 2

Topic: Inventory Accounting (IAS 2)
Series: MAY 2023

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.

Question

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?

Answer

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Tags: IAS 2, Inventory, Prudence, Valuation
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2012

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

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

Question

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

Answer

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Tags: Financial Statements, IAS 2, Inventory Valuation
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2012

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.

Question

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

Answer

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Tags: IAS 2, Inventory Valuation, Manufacturing Company
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2020

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

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

Question

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.

Answer

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Tags: Financial Statements, IAS 2, Inventory Disclosure, Notes to Financial Statements
Level: Level 2

Topic: Inventory Accounting (IAS 2)
Series: NOV 2021

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

Question

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

Answer

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Tags: Accounting Standards, Exclusions, IAS 2, Inventories
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2014

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.

Question

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

Answer

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Tags: Accounting Standards, Exclusions, IAS 2, Inventories
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2014

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

Definition of inventories

Question

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

Answer

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Tags: Accounting Standards, Exclusions, IAS 2, Inventories
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2014

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

Identifies costs included in inventory valuation under IAS 2.

Question

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

Answer

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Tags: Cost Accounting, IAS 2, Inventory Valuation, Manufacturing Costs
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2014

FA – Nov 2013 – L1 – SA – Q7 – Accounting for Inventories in Accordance with IAS 2

Understanding IAS 2's guidelines on inventory valuation.

Question

In accordance with IAS2, which of the following statements about the valuation of inventory is correct?

A. Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable approximation of actual cost
B. LIFO is an accepted valuation method for inventory
C. FIFO is not an accepted valuation method for inventory
D. The cost of goods manufactured by an enterprise will include materials and labour only
E. Inventory items are normally valued at the higher of cost and net realisable value

Answer

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Tags: Accounting Standards, Cost measurement, IAS 2, Inventory Valuation
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2013

AA – May 2019 – L2 – Q7 – Audit Evidence

Discussion on the importance of closing inventory to auditors, risks of misstatement, and constituents of inventory valuation.

Question

For many businesses (except service organizations), inventory is one of the areas that needs most attention from the auditor. Hence, audit work on inventory is often given to more experienced members of the audit team who will subject the work to a more rigorous review and quality control. In addition, IAS 2 requires that inventory should be valued at the lower of cost and net realizable value on an item-by-item basis.

You are required to:

a. Briefly explain SIX reasons why closing inventory is very important to the auditor. (6 Marks)

b. Explain FIVE principal risks of misstatement associated with closing inventory. (5 Marks)

c. Identify the constituents of cost and net realizable value in an inventory valuation exercise. (4 Marks)

Answer

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Tags: Cost and Net Realisable Value, IAS 2, Inventory Audit, Inventory Valuation, Misstatement Risks
Level: Level 2

Topic: Audit evidence
Series: MAY 2019

FA – May 2018 – L1 – SA – Q3 – Accounting for Inventories in Accordance with IAS 2

Identifies the items included in the cost of inventories.

Question

Which of the following is included in the cost of inventories?
A. Abnormal amounts of wasted materials, labour, and other production costs
B. Conversion costs
C. Storage costs
D. Administrative overhead
E. Selling costs

Answer

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Tags: Costs, IAS 2, Inventories

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2018

FA – Nov 2021 – L1 – SB – Q5c – Inventory

This question identifies costs that should be excluded when measuring the value of inventories.

Question

Identify any costs which should be excluded when measuring the value of inventories

Answer

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Tags: Excluded Costs, IAS 2, Inventory Valuation
Level: Level 1

Topic: Inventory
Series: NOV 2021

FA – Nov 2021 – L1 – SB – Q5b – Inventory

This question asks for an explanation of the costs that should be included when measuring the value of inventories.

Question

Explain the costs which should be included when measuring the value of inventories.

Answer

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Tags: Costing, IAS 2, Inventory Valuation
Level: Level 1

Topic: Inventory
Series: NOV 2021

FA – Nov 2021 – L1 – SB – Q5a -Inventory

This question asks for the explanation of the term "inventories" as defined by IAS 2.

Question

Explain the term “inventories” as defined by IAS 2 – Inventory.

Answer

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Tags: Financial Reporting, IAS 2, Inventory Definition
Level: Level 1

Topic: Inventory
Series: NOV 2021

FA – Nov 2021 – L1 – SA – Q9 – Inventory

This question tests knowledge of costs included in inventory valuation as per IAS 2.

Question

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

Answer

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Tags: IAS 2, Inventory Valuation, Multiple Choice
Level: Level 1

Topic: Inventory
Series: NOV 2021

FA – Nov 2022 – L1 – SB – Q5 – Accounting for Inventories (IAS 2)

This question asks for the definition of inventories, costs included in inventory measurement, excluded costs, and the calculation of total cost of inventory.

Question

a. Explain the term “inventories” as defined by IAS 2 – Inventories.
(3 Marks)

b. Explain the costs that should be included when measuring the value of inventories.
(8 Marks)

c. Identify the costs that should be excluded from the measurement of inventories.
(4 Marks)

d. Ebuka and Sons Enterprise is a manufacturing entity which imports some of its raw materials from overseas. The entity recently took delivery of some materials as detailed below:

(i) 2,000kg of materials at ₦625 per kg subject to a trade discount of 5%.
(ii) Import duties and other non-recoverable taxes paid amounted to ₦266,000.
(iii) 3% early payment discount allowance enjoyed by the enterprise amounted to ₦37,500.
(iv) Delivery cost on materials imported from customs warehouse to production plant was ₦125,000.
(v) 3,500kg of local materials at ₦250 per kg subject to a trade discount of ₦50,000.
(vi) Carriage inwards on local materials purchased was ₦205,000.
(vii) Special toll fare paid to commodity board for local materials purchased was ₦25,000.

Required:
i. Calculate the total cost of inventory of raw materials. (3 Marks)
ii. It is estimated that these materials can produce 5,000 units of finished product. Calculate the material cost per unit of finished product. (2 Marks)

Answer

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Tags: Cost of Conversion, Exclusion of Costs, IAS 2, Inventories
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2022

FA – Nov 2022 – L1 – SA – Q9 – Accounting for Inventories (IAS 2)

Identify the cost that should be included in determining the value of inventories for a manufacturing company.

Question

Answer

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Tags: IAS 2, Inventory Valuation, Manufacturing Costs
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2022

FA – May 2021 – L1 – SB – Q6b – Accounting for Inventories in Accordance with IAS 2

Calculate the cost of plastic buckets sold during the period using the First-in-First-Out (FIFO) method.

Question

Jayek Limited is a manufacturer of plastic buckets. On 1 January 2018, Jayek Limited held 15,000 plastic buckets at ₦11,865,000. During the year ended 31 December 2018, Jayek Limited produced 120,000 plastic buckets, compared to a normal production level of 150,000 plastic buckets. 12,000 plastic buckets’ inventories were held at 31 December 2018.

Production costs for the year were as follows:

Description	Amount (₦)
Raw Materials	42,000
Direct Labour	2,000
Variable Overheads	14,040
Fixed Overheads	25,950

At the reporting date, the net realizable value of the plastic buckets was higher than the cost.

Required: Using the First-in-First-Out (FIFO) method within the context of IAS 2 (Inventories), calculate the cost of plastic buckets sold during the period.

Answer

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Tags: Cost of Goods Sold, FIFO Method, IAS 2, Inventory Valuation
Level: Level 1

Series: MAY 2021

Question Tag: IAS 2

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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

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

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

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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.

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

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

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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.

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

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

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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

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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.

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

Definition of inventories

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

Identifies costs included in inventory valuation under IAS 2.

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FA – Nov 2013 – L1 – SA – Q7 – Accounting for Inventories in Accordance with IAS 2

Understanding IAS 2's guidelines on inventory valuation.

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AA – May 2019 – L2 – Q7 – Audit Evidence

Discussion on the importance of closing inventory to auditors, risks of misstatement, and constituents of inventory valuation.

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FA – May 2018 – L1 – SA – Q3 – Accounting for Inventories in Accordance with IAS 2

Identifies the items included in the cost of inventories.

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FA – Nov 2021 – L1 – SB – Q5c – Inventory

This question identifies costs that should be excluded when measuring the value of inventories.

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FA – Nov 2021 – L1 – SB – Q5b – Inventory

This question asks for an explanation of the costs that should be included when measuring the value of inventories.

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FA – Nov 2021 – L1 – SB – Q5a -Inventory

This question asks for the explanation of the term "inventories" as defined by IAS 2.

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FA – Nov 2021 – L1 – SA – Q9 – Inventory

This question tests knowledge of costs included in inventory valuation as per IAS 2.

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FA – Nov 2022 – L1 – SB – Q5 – Accounting for Inventories (IAS 2)

This question asks for the definition of inventories, costs included in inventory measurement, excluded costs, and the calculation of total cost of inventory.

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FA – Nov 2022 – L1 – SA – Q9 – Accounting for Inventories (IAS 2)

Identify the cost that should be included in determining the value of inventories for a manufacturing company.

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FA – May 2021 – L1 – SB – Q6b – Accounting for Inventories in Accordance with IAS 2

Calculate the cost of plastic buckets sold during the period using the First-in-First-Out (FIFO) method.

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