Topic: Accounting for Inventories (IAS 2)

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FA – May 2012 – L1 – SB – Q3 – Accounting for Inventories in Accordance with IAS 2

Accounting treatment for containers used in sales and calculation of deposits owed by customers.

Question

Nimyaro Limited sold goods in containers, which are charged out to customers at N15 each. Customers were credited with N10 for each container returned before the expiration of the due dates. At the end of the year, inventories of containers in warehouse and all returnable containers in the hands of customers were valued at N5 each.
On 1 August 2011, the number of such containers were 10,000 and 35,000 respectively. During the year ended 31 July 2011, the following transactions relating to containers took place:
(i) 40,000 were purchased at N7.50 each.
(ii) 150,000 were charged to customers.
(iii) 125,000 were returned by customers.
(iv) 4,000 of the returned containers were useless and sold for N5,000.
(v) On 31 July 2011, 55,000 containers invoiced since 1 July 2011 were in the hands of customers.
You are required to record the above transactions in the books of Nimyaro Limited for
the year ended 31 July 2011 using Containers Suspense Account Method.

Answer

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Tags: Containers, Debtor Control, Sales Accounting
Level: Level 1

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

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 – Q24 – Accounting for Inventories in Accordance with IAS 2

Identifying the most appropriate basis for apportioning inventory holding costs among departments.

Question

The most appropriate basis for apportioning inventory holding costs among departments is to use the value of:

Answer

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Tags: Cost Allocation, Inventory
Level: Level 1

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

FA – May 2012 – L1 – SA – Q19 – Accounting for Inventories in Accordance with IAS 2

Identifying a non-advantage of computerized accounting systems.

Question

Which of the following is NOT an advantage of computer accounting application packages over manual accounting?

A. Generating a variety of accounting reports
B. Improving the quality of financial reporting
C. Allowing the use of common data to update relevant accounting modules
D. Processing larger quantities of data quickly and accurately
E. Allowing non-experts unrestricted use of the application packages

Answer

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Tags: Computerized Accounting, Financial Reporting
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 2011 – L1 – SA – Q6 – Accounting for Inventories (IAS 2)

This question asks about the basis for valuing stock in a trading company.

Question

What is the basis of valuing stock in a trading company?

Answer

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Tags: Inventory Valuation, Stock
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q20 – Accounting for Inventories (IAS 2)

This question asks about the basis for valuing inventory.

Question

The basis of valuation of inventory is
A. Lower of cost or net realizable value
B. Lower of cost and market value
C. Lower of cost and net realizable value
D. Lower of average cost and market value
E. Lower of average cost and net realizable value

Answer

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Tags: Inventory Valuation, Lower of Cost or Market Value
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2011

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

FA – Nov 2020 – L1 – SA – Q5 – Accounting for Inventories in Accordance with IAS 2

Effect of closing inventory overvaluation on reported profit.

Question

The closing inventories of a firm were overvalued by N300,000 due to an overcast error in one of the inventory valuation sheets.

How would the correction of this affect the reported profit?
A. Increase reported profit by N300,000
B. Reduce reported profit by N300,000
C. No effect on the reported profit
D. Increase reported profit by N600,000
E. Reduce reported profit by N600,000

Answer

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Tags: Error Correction, Inventory Valuation, Profit Impact
Level: Level 1

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

FA – May 2013 – L1 – SA – Q23 – Accounting for Inventories (IAS 2)

This question tests the effect of overstating closing inventory on net income.

Question

What is the effect of overstating closing inventory on net income?

Answer

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Tags: Closing Inventory, Financial Statements
Level: Level 1

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

FA – May 2022 – L1 – SB – Q6a – Accounting for Inventories in Accordance with IAS 2

Present a table of inventory movements and calculate the closing inventory using the weighted average cost method.

Question

Oyin Limited purchases and sells identical articles. The table below shows the inventory movement in the store, and the company has a policy of using the weighted average cost method in its storekeeping. The company’s accounting period ends on December 31 each year.

Month	Quantity Purchased	Unit Price (₦)	Quantity Issued/Sold
Brought Forward	150	100
February 2020	350	150
April 2020			340
June 2020	440	180
August 2020			420
October 2020	420	210
December 2020			360

Required:
Present a table of the inventory movements from January to December 2020 and show the cost of inventory on December 31, 2020.

Answer

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Tags: Inventory Management, Inventory Valuation, Weighted Average Cost
Level: Level 1

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

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

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 buildings
E. Discount allowed

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 – SA – Q16 – Accounting for Inventories in Accordance with IAS 2

Identify a disclosure not required under IAS 2 for inventory.

Question

Which of the following is NOT required to be disclosed under IAS 2, Inventory?

A. Accounting policies adopted for measurement of inventory
B. Physical count of inventory at the end of the period
C. Amount of inventories recognised as expense during the period
D. Carrying amount of inventories pledged as security for liabilities
E. Carrying amount of inventories carried at fair value less cost of sale

Answer

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Tags: Disclosures, IAS 2, Inventory
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2021

FA – Nov 2023 – L1 – SA – Q8 -Accounting for Inventories in Accordance with IAS 2

Determine the cost per unit of closing inventory using the weighted average cost method.

Question

Using the Weighted Average Cost method, what is the cost per unit of the closing inventory after the company issued 500 units?

A. N82.50
B. N83.75
C. N85.00
D. N86.25
E. N87.50

Answer

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Tags: Cost Method, Inventory, Weighted Average
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2023

FA – Nov 2023 – L1 – SA – Q7 – Accounting for Inventories in Accordance with IAS 2

Calculate closing inventory using the FIFO method.

Question

Using the First-In-First-Out (FIFO) method, what is the value of the closing inventory after the company issued 500 units?

A. ₦37,000
B. ₦37,500
C. ₦38,750
D. ₦42,500
E. ₦45,000

Answer

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Tags: FIFO, Inventory, Valuation
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: NOV 2023

FA – May 2017 – L1 – SA – Q9 – Accounting for Inventories in Accordance with IAS 2

Identifies the appropriate valuation method during liquidation.

Question

Which of the following valuation methods should be used when an entity is faced with liquidation?
A. Fair value
B. Historical cost
C. Current cost
D. Realisable value
E. Present value

Answer

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Tags: Liquidation, Realizable value, Valuation Methods
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2017

FA – May 2017 – L1 – SA – Q6 – Accounting for Inventories in Accordance with IAS 2

Deals with IAS 2 on inventories and the financial statements that pertain to it.

Question

IAS 2 deals with
A. Statement of Financial Position
B. Statement of Comprehensive Income
C. Statement of Cash Flow
D. Inventories
E. Depreciation

Answer

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Tags: Depreciation, IAS 2, Inventories, Statement of Comprehensive Income, Statement of Financial Position
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2017

FA – May 2016 – L1 – SA – Q6 – Accounting for Inventories in Accordance with IAS 2

A question about the components that are part of the cost of inventories according to IAS 2.

Question

Question:
Which of the following is NOT part of the cost of inventories, in relation to IAS 2 Inventories?
A. The purchase price
B. Import duties
C. Transport costs
D. Handling costs
E. Selling costs

Answer

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Tags: Costs, IAS 2, Inventories
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2016

FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)

Calculates the total lower of cost and NRV adjustment required for Bala PLC’s inventory and prepares the necessary journal entry.

Question

b. Bala PLC prepares its financial statements on December 31, 2023. At the end of the year, Bala PLC holds three different inventory items. The following information is available for each item:

Item A:
Cost as at December 31, 2023: ₦1,500,000
Estimated selling price: ₦1,800,000
Estimated costs of completion, disposal, and selling expenses: ₦200,000
Item B:
Cost as at December 31, 2023: ₦2,250,000
Estimated selling price: ₦2,000,000
Estimated costs of completion, disposal, and selling expenses: ₦300,000
Item C:
Cost as at December 31, 2023: ₦3,000,000
Estimated selling price: ₦3,200,000
Estimated costs of completion, disposal, and selling expenses: ₦400,000

Required:

i. Calculate the total lower of cost and NRV adjustment required for inventory of Bala PLC. (2 Marks)

ii. Prepare the necessary journal entry to adjust the inventory to its lower of cost and NRV. (3 Marks)

Answer

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Tags: Inventory Adjustment, Inventory Valuation, Lower of Cost and NRV
Level: Level 1