IAS 2MFRS 102 Accounting for Inventories

Question 1: Which of the following items is not considered inventory under IAS 2/MFRS 102? A) Finished goods B) Raw materials C) Equipment used in production D) Work in progress Answer: C) Equipment used in production Question 2: What is the primary objective of IAS 2/MFRS 102? A) To prescribe accounting treatment for property, plant, and equipment B) To prescribe accounting treatment for inventories C) To establish criteria for recognizing revenue D) To establish criteria for recognizing expenses Answer: B) To prescribe accounting treatment for inventories Question 3: According to IAS 2/MFRS 102, inventory should be measured at the lower of: A) Historical cost or replacement cost B) Fair value or replacement cost C) Cost or net realizable value D) Market price or replacement cost Answer: C) Cost or net realizable value Question 4: Which of the following costs should be included in the cost of inventory under IAS 2/MFRS 102? A) Administrative overheads B) Selling costs C) Storage costs of finished goods D) Direct costs of conversion Answer: D) Direct costs of conversion Question 5: Net realizable value (NRV) is defined as: A) Selling price less cost of goods sold B) Selling price less cost to complete and sell C) Market price less production cost D) Historical cost less accumulated depreciation Answer: B) Selling price less cost to complete and sell Question 6: Which of the following is not an example of inventory under IAS 2/MFRS 102? A) Goods held for resale B) Materials in the production process C) Land held for resale D) Property, plant, and equipment used in production Answer: D) Property, plant, and equipment used in production Question 7: Under IAS 2/MFRS 102, when should an inventory write-down be reversed? A) When the selling price decreases B) When the selling price increases C) When the cost of production increases D) When the replacement cost decreases Answer: B) When the selling price increases Question 8: Which of the following cannot be included in the cost of inventory under IAS 2/MFRS 102? A) Purchase price B) Import duties and taxes C) Selling and distribution costs D) Handling costs directly attributable to the inventory Answer: C) Selling and distribution costs Question 9: IAS 2/MFRS 102 excludes the valuation of inventories for which industry? A) Manufacturing B) Retail C) Agricultural products after harvest D) Service industry Answer: C) Agricultural products after harvest Question 10: Under the FIFO (First-In, First-Out) method, which inventory items are assumed to be sold first? A) The most recently purchased items B) The least expensive items C) The oldest items D) The highest quality items Answer: C) The oldest items Question 11: The weighted average cost method is based on: A) The average of the most recent inventory purchases B) The total cost of inventory divided by the number of units available C) The first units purchased D) The last units purchased Answer: B) The total cost of inventory divided by the number of units available Question 12: Which of the following inventory costs should not be capitalized under IAS 2/MFRS 102? A) Direct materials B) Direct labor C) Administrative overheads not related to production D) Factory overheads directly attributable to production Answer: C) Administrative overheads not related to production Question 13: What is the correct treatment for inventory when cost exceeds net realizable value under IAS 2/MFRS 102? A) Inventory is carried at cost B) Inventory is carried at NRV C) Inventory is carried at fair value D) Inventory is written down and carried at cost Answer: B) Inventory is carried at NRV Question 14: IAS 2/MFRS 102 applies to which of the following inventories? A) Biological assets B) Financial instruments C) Work in progress for construction contracts D) Finished goods in a manufacturing company Answer: D) Finished goods in a manufacturing company Question 15: According to IAS 2/MFRS 102, inventory write-downs to net realizable value should be recognized: A) As an asset in the balance sheet B) As revenue in the income statement C) As an expense in the income statement D) As equity in the statement of changes in equity Answer: C) As an expense in the income statement: Question 16: Under IAS 2/MFRS 102, which of the following best describes the treatment of borrowing costs related to inventories? A) Borrowing costs must always be expensed when incurred B) Borrowing costs can only be capitalized if the inventory is part of a qualifying asset C) Borrowing costs should always be included in the cost of inventory D) Borrowing costs should only be capitalized if they relate to direct materials Answer: B) Borrowing costs can only be capitalized if the inventory is part of a qualifying asset Question 17: Which of the following methods of inventory costing is prohibited under IAS 2/MFRS 102? A) First-In, First-Out (FIFO) B) Weighted Average Cost C) Specific Identification D) Last-In, First-Out (LIFO) Answer: D) Last-In, First-Out (LIFO) Question18: A company estimates that due to a decline in demand, 20% of its inventory may become obsolete. However, management believes that 80% of this inventory can still be sold at a discounted price. How should the company account for this under IAS 2/MFRS 102? A) Write down the entire inventory by 20% B) Write down the inventory to its net realizable value based on estimated future sales C) Retain the inventory at cost, as it can still be sold D) Recognize a liability for potential losses in inventory obsolescence Answer: B) Write down the inventory to its net realizable value based on estimated future sales Question 19: Which of the following would not result in a reversal of an inventory write-down under IAS 2/MFRS 102? A) A sudden increase in market demand B) An improvement in the quality of the inventory C) A decrease in the cost to sell the inventory D) A decrease in the selling price of the inventory Answer: D) A decrease in the selling price of the inventory Question 20: IAS 2/MFRS 102 excludes the measurement of inventories of certain products when they are measured at fair value less costs to sell. Which of the following items would this apply to? A) Raw materials B) Work in progress for construction contracts C) Commodities traded in active markets D) Retail goods Answer: C) Commodities traded in active markets Question 21: In which of the following circumstances should a company capitalize storage costs under IAS 2/MFRS 102? A) When the goods are stored before sale B) When the storage costs are incurred during the normal production process C) When the goods are stored for display in retail outlets D) When the storage costs are part of the selling costs Answer: B) When the storage costs are incurred during the normal production process Question 22: Which of the following statements is true regarding the allocation of fixed production overheads to inventory under IAS 2/MFRS 102? A) Fixed production overheads should be allocated based on actual production B) Fixed production overheads should be allocated based on normal capacity, regardless of actual production C) Fixed production overheads should always be expensed in the period incurred D) Fixed production overheads should be allocated based on budgeted sales volume Answer: B) Fixed production overheads should be allocated based on normal capacity, regardless of actual production Question 23: IAS 2/MFRS 102 requires that inventories be measured at the lower of cost and net realizable value. Which of the following factors should not be considered when calculating net realizable value? A) Selling price B) Cost to complete the production C) Replacement cost D) Selling costs Answer: C) Replacement cost Question 24: When determining the cost of inventories, which of the following items can be capitalized under IAS 2/MFRS 102? A) Abnormal waste of materials B) Selling and distribution expenses C) Cost of conversion of raw materials into finished goods D) General administrative expenses Answer: C) Cost of conversion of raw materials into finished goods Question 25: A company acquires inventory from a supplier and receives a trade discount of 5% on the purchase price. Under IAS 2/MFRS 102, how should the trade discount be treated in the financial statements? A) The trade discount should be deducted from the cost of the inventory B) The trade discount should be recognized as other income C) The trade discount should be added to the cost of the inventory D) The trade discount should be disclosed in the notes to the financial statements Answer: A) The trade discount should be deducted from the cost of the inventory Question 26: Under IAS 2/MFRS 102, which of the following should not be included in the cost of conversion of inventories? A) Direct labor B) Fixed production overheads allocated based on normal capacity C) Costs of abnormal waste of materials D) Variable production overheads Answer: C) Costs of abnormal waste of materials Question 27: Which of the following is not allowed as an inventory costing method under IAS 2/MFRS 102? A) FIFO B) Specific Identification C) Weighted Average Cost D) Replacement Cost Answer: D) Replacement Cost Question 28: A manufacturing company uses the weighted average cost method. At the beginning of the period, they had 500 units of inventory valued at RM50 per unit. During the period, they purchased another 1,000 units at RM55 per unit. At the end of the period, they sold 1,200 units. What is the weighted average cost per unit after the purchases? A) RM50.50 B) RM53.33 C) RM54.00 D) RM52.00 Answer: B) RM53.33 Calculation: (500 units * RM50) + (1,000 units * RM55) = RM25,000 + RM55,000 = RM80,000 Total units = 500 + 1,000 = 1,500 Weighted average cost = RM80,000 / 1,500 units = RM53.33