Business Management

IAS 2 INVENTORIES

1. Which of the following statements represents the primary focal point of the guidance in IAS 2?

A. It prescribes the criteria an entity must follow when allocating inventory costs to operating divisions under divestiture.

B. It prescribes how an entity must account for inventories in its financial statements.

C. It prescribes the criteria an entity must follow when recording inventories acquired in a business combination.

D. It prescribes the accounting treatment an entity must follow when acquiring inventories via derivative instruments.

2. A real estate company wants to diversify its operation and purchases properties that are planned to be ready for sale in about a month. How must the company classify the purchased properties?

A. The properties should be classified as property, plant and equipment under IAS 16.

B. The properties should be classified as investment property under IAS 40.

C. The properties should be classified as inventory under IAS 2.

3. About an acquisition of tires (inventories) made by Speedway you know the followings:

Speedway Auto Manufacturers
Date: 21 March 2021
	€
Purchase price	60.000
Shipping costs	400
Import duties	1.000
Consumption taxes	900
Transportation costs to the warehouse	300
Note: 2% discount for immediate payment

Speedway took advantage of the discount. Owing to the location of the factory in a certain economic zone, Speedway is able to recover the consumption taxes once the proper claim for refund is filed. What is the amount Speedway should book as the cost of purchase of the tires?

A. 61.100

B. 61.400

C. 62.600

D. 60.500

4. Road Car produces car doors. The conversion cost according to IAS 2 in this case includes:

A. Labor costs of factory workers who mold the doors;

B. Depreciation of press used in the manufacturing process;

C. Salary of the factory payroll director;

D. Additional costs incurred for rework due to incorrect specifications.

E. Rent expense for the factory;

F. Maintenance costs for production equipment

5. The selling price of an LCD screen that is used in computer monitors is currently €150 but the price at which they were purchased was €180. The whole computer monitor, including the LCD screen, sells for €500 and the total cost to manufacture (including the LCD screen) is €400. What conclusion would you draw from these facts?

A. By comparing the cost of the LCD screen with its selling price, you conclude that the cost of the LCD screen would be written down.

B. By comparing the selling price of the computer monitor with the cost needed to manufacture it, you conclude that the LCD screen inventories would not be written down.

C. You conclude that an expense would be recorded to completely write off the LCD screen inventories, since the costs are not recoverable.

6. Soft Plus Co. is a well-known soft developer company. You know the following information regarding one of their products:

· Software development and production costs €900

· Current selling price €1200

· Cost to sell: €100

As a result of the competitor’s product reaching the market, we had to make the following revisions:

· New selling price: €950

· The cost to sell remains unchanged.

Determine the new carrying amount of the inventory.

A. €900

B. €1.100

C. €850

D. €950

7. A retailer of perishable produce seeks to avoid obsolescence by arranging its produce in such a way that customers are most likely to purchase the oldest inventory first. The cost formula that is most appropriate for the entity is:

A. first-in, first out (FIFO)

B. last-in, first-out (LIFO)

C. weighted average cost

D. specific identification

8. Which of the following statements define the term ‘net realisable value’?

A. The estimated selling price in the ordinary course of business plus the estimated costs of completion less the estimated costs necessary to make the sale.

B. The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

C. The estimated cost of completion less selling price in the ordinary course of business.

D. The estimated costs necessary to make the sale plus selling price in the ordinary course of business less the estimated costs of completion.

9. Normal capacity is the production expected to be achieved on average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance.

A. True

B. False

10. A company holds three distinct types of inventory in its warehouse at the end of its financial year. These are valued as follows:

Inventory	FIFO (cost)	LIFO (cost)	NRV	VALUE IN ACCOUNTS
Type A	8,300	8,000	12,200	?
Type B	10,500	10,700	10,200	?
Type C	12,300	12,000	14,500	?
Total	31,100	30,700	36,900	?

Task. Calculate the value of inventory to be included in the company’s year-end accounts.