TEST: IAS 2: INVENTORIES MARKS = 20

Taha Popatia

1. Any amount of write-down of inventories to net realizable value should?

(a) Treated as a deferred expense and written off based on the average inventory
holding period
(b) Recognized as an expense in the period in which the write-down occurs
(c) Recognized as an expense in the subsequent period in which such write-down is
warranted
(d) Recognized as a current liability in the statement of financial position

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

(a) Market value

(b) Fair value
(c) Net realizable value
(d) Current value

3. Alpha Traders (AT) has a closing inventory of Rs. 20,000 at 31 December 2022, out of
which 12 units are damaged, having a cost of Rs. 16,000 and could be sold at Rs.
22,000 after bearing Rs. 5,000 repairing cost.
The value of inventory as at 31 December 2022 should be:

(a) Rs. 16,000

(b) Rs. 22,000
(c) Rs. 18,000
(d) Rs. 20,000

4. Which of the following costs must be expensed?

(a) Costs of purchase that are paid to the suppliers of raw materials
(b) Import duties on raw materials that are paid to the authorities
(c) Variable production overheads that are allocated to each unit based on actual
usage
(d) Distribution cost

5. What is impact on closing inventory if an item having cost of Rs. 2,500 and a net
realizable value of Rs. 3,000 has been omitted from year - end inventory count?

(a) Understated by Rs. 2,500

(b) Understated by Rs. 3,000
(c) Overstated by Rs. 2,500
(d) Understated by Rs. 500

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PRC-04: Introduction to accounting
TEST: IAS 2: INVENTORIES MARKS = 20
Taha Popatia

6. If opening inventory was overstated by Rs. 12,500 and closing inventory was
understated by Rs. 7,500, the impact on the cost of goods sold for the period will be:

(a) Overstated by Rs. 5,000

(b) Overstated by Rs. 7,500
(c) Overstated by Rs. 12,500
(d) Overstated by Rs. 20,000

7. If closing inventory is accounted for as Rs.240,000 instead of Rs.180,000 then;

(a) Gross profit as well as net profit will be exaggerated

(b) Gross profit and net profit would both be understated
(c) Gross profit will be exaggerated, and net profit understated
(d) Gross profit will be exaggerated but net profit correctly reported

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

(a) First in, First out (‘FIFO’)

(b) Last in, First out (‘LIFO’)
(c) Weighted Average
(d) Actual cost
9. Karachi Traders (KT) performed a stock count on 10 January 2023 for the year ended
31 December 2022. The stock count revealed an inventory value of Rs. 480,000.
During 1 January to 10 January 2023, KT sold inventory for Rs. 81,000 at cost plus
35% and purchased inventory of Rs. 38,000.
The value of inventory as at 31 December 2022 should be:

(a) Rs. 523,000

(b) Rs. 502,000
(c) Rs. 458,000
(d) Rs. 437,000

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

(a) Average holding period of inventories of the entity as at the end of the reporting
period
(b) List of major customers to whom the inventories were sold during the reporting
period (c) Amount of expense recognized due to write down of inventories
(d) Average lead time of procurement for major classes of inventories

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PRC-04: Introduction to accounting
TEST: IAS 2: INVENTORIES MARKS = 20
Taha Popatia

11. Which of the following is NOT a disclosure requirement of IAS 2?

(a) The accounting policies adopted in measuring inventories

(b) The cost formula used
(c) The amount of any write-down of inventories recognized as an expense in the
period
(d) Location of each place where entity keeps its inventory

12. Ali had opening inventory of Rs. 1,500,000. Purchases made during the period were
Rs. 2,550,000. Sales during the period were Rs. 4,500,000 and he had closing
inventory of Rs. 1,000,000.
Gross profit for the period was?

(a) Rs. 1,950,000 Profit

(b) Rs. 450,000 Profit
(c) Rs. 1,450,000 Profit
(d) Rs. 550,000 Loss
13. Raw material which is incorporated into goods manufactured but is not easily
identifiable to the goods being made would be classified as:

(a) Manufacturing overheads

(b) Direct material
(c) Work in progress
(d) Direct overheads

14. Goods costing Rs. 75,000 were withdrawn by the owner for personal use. Normally,
goods are sold at a 20% markup.
The correct entry for recording the drawing of goods under the periodic system of
inventory shall be:

(a) Dr. Drawings Rs. 75,000 and Cr. Purchases Rs. 75,000
(b) Dr. Drawings Rs. 75,000 and Cr. Inventory Rs. 75,000
(c) Dr. Drawings Rs. 90,000 and Cr. Purchase Rs. 90,000
(d) Dr. Drawings Rs. 90,000 and Cr. Inventory Rs. 90,000

15. What is correct entry for goods taken by owner for personal use?

(a) Cr Purchases account and Dr Drawings account with the cost price of the goods.
(b) Cr Opening Inventory account and Dr Drawings account with cost price of the
goods.
(c) Cr Trading account and Dr Drawings account with the selling price of the goods.
(d) Cr Sales account and Dr Drawings account with the sale price of the goods.

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PRC-04: Introduction to accounting
TEST: IAS 2: INVENTORIES MARKS = 20
Taha Popatia

16. In accordance with IAS-2 Inventories, fixed and variable costs of conversion are
included in inventory in which of the following ways?

(a) Variable and fixed conversion costs both on actual production level.
(b) Variable and fixed conversion costs both on normal production level.
(c) Variable conversion cost on normal production level and fixed conversion cost on
actual production level.
(d) Variable conversion cost on actual production level and fixed conversion cost
on normal production level, if actual production level does not exceed normal
production level.

17. If trial balance includes “purchase” and “purchase return” account, it is an indication
of:

(a) Weighted average method

(b) FIFO method
(c) Perpetual inventory recording system
(d) Periodic inventory recording system

18. In which TWO of the following circumstances, a periodic inventory system might be
more suitable?

(a) Large size items

(b) High value items
(c) Low value items
(d) Where inventory movements are frequent

19. In which TWO of the following circumstances, a perpetual inventory system might be
more suitable?

(a) Large size items

(b) High value items
(c) Low value items
(d) Where inventory movements are frequent

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PRC-04: Introduction to accounting
TEST: IAS 2: INVENTORIES MARKS = 20
Taha Popatia

20. Opening stock of Mujtaba was Rs. 540,000, and total purchases during October 2022
were Rs. 1,150,000. Total sales for October 2022 were Rs. 1,240,000, and the stock
at the end of October 2022 was recorded at Rs. 555,000. The gross profit of Mujtaba
for October 2022 was:

(a) Rs. 90,000

(b) Rs. 105,000
(c) Rs. 75,000
(d) Rs. 100,000

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PRC-04: Introduction to accounting