Problem 18-1 Multiple choice (PAS 2)
1. Which statement is incorrect regarding LCNRV?
1. Inventories shall be measured at
a. Cost
b. Net realizable
c. Lower of cost and net realizable value
d. Lower of cost and market
Answer : c. Lower of cost and net realizable
value
2. The cost of inventories shall be measured using
a. FIFO
b. Average method
c. LIFO
d. Either FIFO or average method
Answer : d. Either FIFO or average method
3. Net realizable value is
a. Current replacement cost
b. Estimated selling price
c. Estimated selling price less estimated cost
to complete
d. Estimated selling price less estimated cost
to complete and estimated cost of
disposal
Answer : d. Estimated selling price less estimated cost
to complete and
estimated cost of disposal
4. Inventories are usually written down to net realizable
valuep
a. Item by item
b. By classification
c. By total
d. By segment
Answer : a. Item by item
Answer :b. In most situations, entities price
inventory on a total inventory
basis.
2. Which of the following statements is true regarding
inventory writedown and
reversal of writedown?
a. Reversal of inventory writedown is
prohibited.
b. Separate reporting of reversal of inventory
writedown is required.
c. Entities are required to record writedown in
a separate loss account.
d. All of the choices are correct.
Answer :b. Separate reporting of reversal of
inventory writedown is required.
3. LCNRV of inventory
a. Is always either the net realizable value or
cost.
b. Should always be equal to net realizable
value.
c. May sometimes be less than the net
realizable value.
d. Should always be equal to the estimated
selling price less cost to complete.
5. The amount of any writedown of inventory to net
realizable value and all losses of
inventory should be
Answer :a. Is always either the net realizable
value or cost.
a. Recognized as operating expense in the
period the writedown or loss occurs.
b. Recognized as other expense in the period
the writedown or loss occurs.
c. Recognized as component of cost of sales
in the period the writedown or
] loss occurs.
d. Deferred until the related inventory is sold.
4. Lower of cost and net realizable value
Answer : c. Recognized as component of cost of sales
in the period the
writedownor loss occurs.
Problem 18-2 Multiple Choice (IAA)
a. Gives the lowest valuation if applied to the
total inventory.
b. Gives the lowest valuation if applied to
major group of inventory.
c. Gives the lowest valuation if applied to
individual item of inventory.
d. Must be applied to major group.
Answer :c. Gives the lowest valuation if
applied to individual item of
inventory.
5. Which of the following is not an acceptable method
of applying the LCNRV?
a. Inventory location
b. Group Inventory
c. Individual Item
d. Total of the inventory
Answer :a. Inventory location
10. When the cost of goods sold method is used to
record inventory at net realizable
value
6. Reporting inventory at the lower of cost and net
realizable value is a departure from
a. There is a direct reduction in the selling
price.
a. Historical cost
b. Consistency
c. Conservatism
d. Full disclosure
Answer :a. Historical cost
7. When inventory declines in value below original
cost, what is the maximum
amount that the inventory can be valued at?
a. Sales price
b. Net realizable value
c. Historical cost
d. Sales price reduced by estimated cost of
disposal
Answer :b. Net realizable value
8. Lower of cost and net realizable value as it applies
to inventory is best described as
the
a. Reporting of a loss when there is decrease
in the future utility below the
original cost.
b. Method of determining cost of goods sold.
c. Assumption to determine inventory flow.
d. Change in inventory value to net realizable
value.
Answer : a. Reporting of a loss when there is
decrease in the future utility
below theoriginal cost.
b. A loss is recorded directly in the inventory
account by debiting loss.
c. Only the portion of the loss attributable to
inventory sold is recorded.
d. The net realizable value for ending
inventory is substituted for cost and the
loss is buried in cost of goods sold.
Answer : d. The net realizable value for ending
inventory is substituted for
cost and the loss is buried in cost of goods sold.
Problem 18-3 Multiple Choice (IAA)
1. How should sales staff commission be dealt with
when valuing inventory at
LCNRV?
a. Added to cost
b. Ignored
c. Deducted in arriving at net realizable value
d. Deducted from cost
Answer :c. Deducted in arriving at net
realizable value
2. How should trade discounts be dealt with when
valuing inventory at LCNRV?
a. Added to cost
b. Ignored
c. Deducted in arriving at net realizable value
d. Deducted in arriving at cost
Answer :d. Deducted in arriving at cost
9. Which method may be used to record a loss due to
a price decline in the value o
inventory?
a. Loss method
b. Sales method
c. Cost of goods sold method
d. Loss method and cost of goods sold method
Answer :d. Loss method and cost of goods
sold method
3. How should prompt payment discount be dealt with
when valuing inventory at
LCNRV?
a. Added to cost
b. Ignored
c. Deducted in arriving at net realizable value
d. Deducted from cost
Answer :b. Ignored
4. How should import duties be dealt with when valuing
inventory at LCNRV?
Answer. d. All of these are measured at net
realizable value
Answer: b. Fair value less cost of disposal at
the point of harvest
5 produce is
5. Which of the following financial attributed would not
be used to measure
inventory?
a. Historical cost
b. Current replacement cost
c. Net realizable value
d. Present value at future cash flows
Answer: d. Present value at future cash flows
a harvested product from biological asset
b at the time of harvest at the cost of
production
c at each reporting period at fair value
less cost of disposal
d of the choices are correct regarding
agricultural product
Answer: a. The harvested product from
biological asset
Problem 19-1 Multiple choice
1. Biological assets
a. Are found only in Biotech entities
b. Are living animals or living plants and must
disclosed as a separate line
item inthe statement of financial position
c. Must be measured at cost
d. Do not generally have future economic
benefits
Answer: b. Are living animals or living plants
and must disclosed as a
separate line item in the statement of
financial position
2. It is the management by an entity of the biological
transformation and harvest of
biological assets for sale or for conversion into
agricultural produce into additional
biological asset.
6 activity results in which of the following
type of asset?
a asset only
b produce only
c biological asset and agricultural
produce
d biological asset nor agricultural
produce
Answer: c.
agricultural produce
Both
biological
asset
and
7 activity includes all of the following,
except
a livestock
b cropping
d fishing
Answer: d. Ocean fishing
a activity
b activity
c activity
d activity
Answer: a. Agricultural activity
3 assets are measured at
b of cost and net realizable value
c realizable value
d value less cost to disposal
Answer: d. Fair value less cost to disposal
4 produce is measured at
a value
b value less cost of disposal at the point
of harvest
c realizable value
d realizable value less normal profit
margin
8 transformation results from asset changes
through all of the following,
except
d. Production of agricultural produce
Answer: d. Production of agricultural produce
9 is a market in which transactions for the asset or
liability take place with
sufficient regularity and volume to provide pricing
information on an going basis.
a market
b market
c market
d market
Answer: a. Active market
10 of the following should not be considered
cost of disposal?
a to broker and dealer
b by regulatory agency
c tax
d cost
Answer: d cost
Problem 19-2 Multiple choice
1 speaking, biological assets relating to
agricultural activity shall be
measure using
a cost
b less depreciation less impairment
c fair value approach
d realizable value
Answer: c. A fair value approach
2 entity had a plantation forest that is likely to be
harvested and sold in 30 years.
The income shall be accounted for in which of the
following?
a income shall be reported annually until
first harvest and sale in 30 years
b shall be measured annually and reported
using a fair value approach
that recognizes and measures biological growth
c eventual sale proceeds shall be estimated and
matched to the profit and
loss account over the 30-year period.
d plantation forest shall be measured every 5
years and the increase in
value shall be shown in the statement of
comprehensive income
Answer: b. Income shall be measured annually and
reported using a fair value
approach that recognizes and measures biological
growth
3 of the following statements is true regarding
agricultural produce?
a all cases, an entity shall measure agricultural
produce at fair value less
cost of disposal at the point harvest.
b prevailing view is that the fair value of
agricultural produce at the point
of harvest can always be measured reliably
c fair value measurement of agricultural
produce stops at the time of
harvest
d of these statements are true regarding
agricultural produce.
Answer: d. All of these statements are true
regarding agricultural produce.
4 is the measurement basis for valuing biological
assets and agricultural
produce?
a cost
b cost
c value
d value
Answer: d. Fair value
5 the fair value of the biological asset cannot be
determined reliably, the
biological asset shall measured at
b less accumulated depreciation
c less accumulated depreciation and
accumulated impairment loss
d realizable value
Answer: c. Cost less accumulated depreciation
and accumulated impairment
loss
6 of the following is unlikely to be in fair value
measurement?
a price of an identical asset in an
active market
b price of a similar asset in an active
market
c present value of the expected net cash
flows from the asset
d independent valuation
Answer: d. External independent valuation
7 gain or loss arising on the initial recognition of a
biological asset and from a
change in the fair value less cost disposal of a
biological asset shall be included in
a or loss for the period
b comprehensive income
c separate revaluation reserve
d appropriation reserve
Answer: a. Profit or loss for the period
8 there is a long aging or mutation process
after harvest, the accounting for
such products shall be dealt with by
a 41, Agriculture
6 of the following criteria must be satisfied before a
biological asset can be
recognized in an entity’s financial statements, except
a entity controls the asset as a result of past
event
b is probable that future economic benefits
relating to the asset will flow to the
entity
c active market for the asset exists
d fair value or cost of the asset can be
measured reliably
Problem 20-1 Multiple choice
1. Which will not require an estimate of inventory?
a. Inventory destroyed by typhoon
b. Proof of the reasonable accuracy of the physical
inventory
c. Interim financial statements are prepared
d. Determination of the ending inventory to be reported
in the statement of
financial position at year-end
Answer: c. An active market for the asset exists
Answer: c. Interim financial statements are
prepared
7 of the following would be classified as biological
asset, except
2. How is the gross profit method used as it relates to
inventory valuation?
a cattle
a. To verify the accuracy of the perpetual inventory
record.
b. To verify the accuracy of the physical inventory.
c. To estimate cost of goods sold.
d. To provide an inventory value under FIFO
Answer: c. Eggs
8 of the following
agricultural produce?
would
be
classified
as
a. Tree
Answer: d. Apple
9 related to recreational activities, for
example, game parks and zoos,
including the natural breeding of animals in zoos, shall
be accounted for what
under what standard?
a 41 – Agriculture
b 16 – Property, plant and equipment
c 41 – Investment Property
d IAS 41 or IAS 16
Answer: b. IAS 16 – Property, plant and
equipment
10. According to IASB, bearer plants, such as grape
vines, rubber trees and oil palms
which are used solely to grow produce over several
periods should be accounted
for as
a assets with disclosure
b assets without disclosure
c, plant and equipment
d investments
Answer: c. Property, plant and equipment
Answer: c. to estimate cost of goods sold.
3. Which of the following is not a basic assumption of
the gross profit method?
a. The beginning inventory plus purchases equal
total goods to be accounted for.
b. Goods not sold must be hand
c. The sales reduced to cost basis when deducted
from the sum of the beginning
inventory and purchases would result to inventory on
hand
d. The amount of purchases and amount of sales
remain relatively unchanged from
the comparable previous period.
Answer: d. The amount of purchases and amount of
sales remain relatively
unchanged from the comparable previous period.
4. If the gross profit rate is based on cost, the cost of
goods sold 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
Answer: b. Net sales divided by sales ratio
5. The gross margin method of estimating ending
inventory may be used for all of the
following except
a. Internal as well as external interim reports
b. Internal as well as external year end report
c. Estimate of inventory destroyed by fire or other
casualty
d. Rough test of the validity of an inventory cost
determined under either periodic
or perpetual system.
c. There is no beginning inventory because it is the
first year of operation
d. The gross profit percentage applicable to goods in
ending inventory is different
from the percentage applicable to goods sold during
the period.
Answer: b as well as external year- end report
Answer: a portion of inventory is destroyed
6. The use of the gross profit method assumes
a. The amount of gross profit is the same as in prior
years.
b. Sales and cost of goods sold have not changed
from previous years.
c. Inventory values not increased from previous
years.
d. The relationship between selling price and cost of
goods sold is similar to prior
years.
Answer: a. The amount of gross profit is the same as
in prior years.
10 of the following statements is not valid about
the gross profit method?
a. It may be used by auditors
b. It is an acceptable accounting procedure
c. It may be used to estimate inventory for interim
statements
d. It may be used to estimate inventory for annual
statements.
Answer d. It may be used to estimate inventory for
annual statements.
Problem 20-1 Multiple choice
7. The gross profit method of estimating inventory
would not be useful when
a. A periodic system is use and inventories are
required for interim statements.
b. Inventories have been destroyed or lost by fire,
theft or other casualty and the
specific data required for inventory valuation are not
available.
c. There is a significant change in product being
sold.
d. The relationship between gross profit and sales
remain stable over time
Answer: c. There is a significant change in
product being sold
8. The gross profit method of inventory valuation is not
valid when
a. There is substantial increase in the quantity of
inventory during the year.
b. There is substantial increase in the cost of
inventory during the year.
c. The gross margin percentage changes
significantly during the year.
d. All ending inventory is destroyed by fire before it
can be counted.
Answer: c. The gross margin percentage changes
significantly during the year.
9. The gross profit method of inventory valuation is
invalid when
a. A portion of inventory is destroyed
b. There is a substantial increase in inventory
during the year.
1. Which will not require an estimate of inventory?
a. Inventory destroyed by typhoon
b. Proof of the reasonable accuracy of the physical
inventory
c. Interim financial statements are prepared
d. Determination of the ending inventory to be reported
in the statement of financial
position at year-end
Answer: c. Interim financial statements are
prepared
2. How is the gross profit method used as it relates to
inventory valuation?
a. To verify the accuracy of the perpetual inventory
record.
b. To verify the accuracy of the physical inventory.
c. To estimate cost of goods sold.
d. To provide an inventory value under FIFO
Answer: c .To estimate cost of goods sold.
3. Which of the following is not a basic assumption of
the gross profit method?
a. The beginning inventory plus purchases equal
total goods to be accounted for.
b. Goods not sold must be hand
c. The sales reduced to cost basis when deducted
from the sum of the beginning
inventory and purchases would result to inventory on
hand
d. The amount of purchases and amount of sales
remain relatively unchanged from
the comparable previous period.