Question 1

The cost of inventory is the sum of...

Accepted Answer

Cost of purchase, cost of conversion and other cost incurred in bringing the inventory to the present location and condition

Answer

Direct cost, indirect cost, and other cost

Answer

Cost of purchase and cost of conversion

Answer

Cost of conversion and other cost incurred in bringing the inventory to the present location and condition

Question 2

Inventories include all of the following assets, except...

Accepted Answer

Held for use in the production or supply of goods or services

Answer

In the process of production for sale

Answer

Held for sale in the ordinary course of the business

Answer

In the form of materials or supplies to be consumed in the production process or in the rendering of services

Question 3

How should the unallocated fixed overhead be treated?

Accepted Answer

Recognize as an expense in the period incurred

Answer

Allocate to the finished goods and cost of goods sold

Answer

Allocated to goods in process, finished goods and cost of goods sold

Answer

Allocate to raw materials, goods in process and finished goods

Question 4

Mildred Company is a wholesaler of office supplies. The FIFO perpetual inventory is used.

The entity reported the following activity for inventory of calculators during the month of August:
(see image attached)

What is the ending inventory on August 31?

Accepted Answer

P1,529,600

Answer

P1,522,880

Answer

P1,501,600

Answer

P1,500,800

Question 5

The allocation of fixed factory overhead to the cost of conversion is based on...

Accepted Answer

Normal capacity of the production facilities

Answer

Either the normal capacity or actual use of the production facilities, whichever is appropriate

Answer

Relative sales value method

Answer

Actual use of the production facilities

Question 6

The cost of purchase of inventory does not include...

Accepted Answer

Trade discounts, rebates, and other similar items

Answer

Freight, handling and other costs directly attributable to the acquisition of goods

Answer

Import duties and irrevocable taxes

Answer

Purchase price

Question 7

The inventory of a "service provider" is described as work in progress and includes which of the following?

Accepted Answer

All of the above

Answer

Attributable overhead incurred in providing the service

Answer

Labor and other cost of personnel directly engaged in providing the service

Answer

Compensation of supervisor directly engaged in providing the service

Question 8

Which of the following costs of conversion cannot be included in the cost of inventory?

Accepted Answer

Salaries of sales staff

Answer

Factory overhead based on normal capacity

Answer

Cost of direct labor

Answer

Factory rent and utilities

Question 9

Consumable stores or supplies to be consumed in the production process are reported as...

Accepted Answer

Inventory

Answer

Property, plant and equipment

Answer

Investment property

Answer

Prepayments

Question 10

Which of the following should not be reported as inventory?

Accepted Answer

Machinery acquired by manufacturing entity for use in the production process

Answer

Shares and bonds held for resale by a brokerage firm

Answer

Partially completed goods held by a manufacturing entity

Answer

Land acquired for resale by real estate firm

Question 11

Costs incurred in bringing the inventory to the present location and condition include...

Accepted Answer

Cost of designing product for specific customers

Answer

Storage cost not necessary in the production process before a further production stage

Answer

Distribution cost

Answer

Abnormal amounts of wasted material

Question 12

Which of the following should be taken into account when determining the cost of inventory?

Accepted Answer

Storage cost of part-finished goods

Answer

Abnormal freight-in

Answer

Interest on inventory loan

Answer

Recoverable purchase tax

Question 13

Inventories encompass all of the following, except...

Accepted Answer

Land and other properties not held for sale

Answer

Finished goods produced

Answer

Materials and supplies awaiting use in the production process

Answer

Merchandise purchased by a retailer

Question 14

Theoretically, cash discounts permitted on purchased raw materials should be...

Accepted Answer

Deducted from inventory, whether taken or not

Answer

Added to other income, whether taken or not

Answer

Deducted from inventory, only if taken

Answer

Added to other income, only if taken

Question 15

A consignee paid the freight cost for goods shipped from a consignor. The freight cost is to be deducted from the consignee's payment to the consignor when the consigned goods are sold. Until the consignee sells the goods, the freight cost should be included in the consignee's...

Accepted Answer

Accounts receivable

Answer

Distribution cost

Answer

Freight out

Answer

Cost of goods sold

Question 16

Which is not acceptable for the valuation of inventory

Accepted Answer

Prime cost

Answer

Historical cost

Answer

Current selling price less cost of disposal

Answer

Current replacement cost

Question 17

The valuation of inventory on a prime cost basis...

Accepted Answer

Would exclude all overhead from inventory cost

Answer

Is always achieved when the FIFO is adopted

Answer

Is always achieved when standard costing is adopted

Answer

Would achieve the same results as direct costing

Question 18

Which of the following describes the flow of product costs through inventory accounts of a manufacturer?

Accepted Answer

Raw materials, goods in process, finished goods

Answer

Raw materials, goods in process, factory overhead, finished goods

Answer

Raw materials, direct labor, factory overhead, finished goods, merchandise goods

Answer

Raw materials, direct labor, factory overhead

Question 19

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

Accepted Answer

Finished goods

Answer

Work in process

Answer

Raw materials

Answer

Supplies

Question 20

Why is inventory included in the computation of net income?

Accepted Answer

To determine cost of goods sold

Answer

To determine merchandise returns

Answer

Duh?! Inventory is not included in the computation of net income

Answer

To determine sales revenue

Question 21

Which of the following is incorrect about the perpetual inventory method?

Accepted Answer

Purchase returns are recorded by debiting accounts payable and crediting purchase returns and allowances.

Answer

The entry to record a sale includes a debit to cost of goods sold and a credit to inventory

Answer

After a physical count, inventory is credited for any missing inventory

Answer

Purchases are recorded as a debit to the inventory account

Question 22

Which of the following is a characteristic of a perpetual inventory system?

Accepted Answer

Cost of goods sold is recorded with each sale

Answer

Inventory records are not kept for every item

Answer

Inventory purchases are debited to a purchase account

Answer

Cost of goods sold is determined as the amount of purchases less the change in inventory

Question 23

An exception to the general rule that costs should be charged to expense in the period incurred is...

Accepted Answer

Factory overhead costs incurred on a product manufactured but not sold during the current period

Answer

Sales commission and salary incurred in connection with the sale of inventory

Answer

Interest cost for financing of inventories that are routinely manufactured

Answer

General and administrative fixed costs incurred in connection with the purchase of inventory

Question 24

Valuation of inventory requires the determination of all of the following, except...

Accepted Answer

The cost of goods held on consignment

Answer

The cost to be included in the inventory

Answer

The physical goods to be included in the inventory

Answer

The cost flow assumption

Question 25

When activities involve production through natural growth or aging of biological assets, revenue is recognized as the plant or living animal grows. This is known as what approach?

Accepted Answer

Accretion approach

Answer

Cost recovery or zero profit approach

Answer

Completing of production basis

Answer

Fair value approach

Question 26

Which of the following inventory method reports most closely the current cost of inventory?

Accepted Answer

First-in, First-out (FIFO)

Answer

Weighted average

Answer

Last-in, First-out (LIFO)

Answer

Specific identification

Question 27

In a period of falling prices, the use of which inventory cost flow method would typically result in the highest cost of goods sold?

Accepted Answer

First-in, First-out (FIFO)

Answer

Specific identification

Answer

Last-in, First-out (LIFO)

Answer

Weighted average

Question 28

Which inventory cost flow assumption provides the best measure of earnings, where "best" means most appropriate for predicting future earnings when prices have been declining?

Accepted Answer

Last-in, First-out (LIFO)

Answer

Average cost

Answer

First-in, First-out (FIFO)

Answer

Specific identification

Question 29

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed using the FIFO method exceeds cost of goods sold using the average cost method?

Accepted Answer

Prices decreased

Answer

Prices increased

Answer

Price trend cannot be determined from the information

Answer

Prices remained unchanged

Question 30

IFRS prohibits which of the following cost flow assumptions?

Accepted Answer

LIFO

Answer

Specific identification

Answer

Weighted average

Answer

None as any of these cost flow assumptions is allowed

Question 31

Which is the reason why specific identification method may be considered ideal for assigning cost to inventory and cost of goods sold?

Accepted Answer

The cost flow matches with the physical flow

Answer

It is applicable to all types of inventory

Answer

The potential for manipulation of net income is reduced

Answer

There is no arbitrary allocation of cost

Question 32

IFRS requires the specific identification method in certain circumstances. Which of the following is likely to be a circumstance where the specific identification method can be used?

Accepted Answer

Inventories are not interchangeable

Answer

Unit prices are low

Answer

Inventories are highly interchangeable

Answer

Inventory quantities are large

Question 33

Inventories are usually written down to Net Realisable Value...

Accepted Answer

Item by item

Answer

By segment

Answer

By classification

Answer

By total

Question 34

How should trade discounts be dealt with when valuing inventories at the lower of cost and net realizable value?

Accepted Answer

Deducted in arriving at cost

Answer

Deducted in arriving at NRV

Answer

Added to cost

Answer

Ignored

Question 35

When the cost of goods sold method is used to record inventory at net realizable value...

Accepted Answer

The net realizable value for ending inventory is substituted for cost and the loss is buried in the cost of goods sold

Answer

A loss is recorded directly by crediting inventory

Answer

Only the portion of the loss attributable to inventory sold during the period is recorded

Answer

There is a direct reduction in the estimated selling price that results in a loss

Question 36

The gross margin method of estimating ending inventory may be used for all of the following, except.

Accepted Answer

Internal as well as external year-end reports

Answer

Estimate of inventory destroyed by fire or other casualty

Answer

Rough test on the validity of an inventory cost determined under either periodic or perpetual system

Answer

Internal as well as external interim reports

Question 37

The gross profit method of inventory valuation is NOT VALID when...

Accepted Answer

The gross margin percentage changes significantly during the year

Answer

There is a substantial increase in the cost of inventory during the year

Answer

There is a substantial increase in the quantity of inventory during the year

Answer

All ending inventory is destroyed by fire before it can be accounted

Question 38

An advantage of Retail Inventory method is that it...

Accepted Answer

Provides a method for inventory control and facilitates determination of the periodic inventory

Answer

Permits the entites to avoid the taking an annual physical inventory

Answer

Hides costs from customers and employees

Answer

Gives a more accurate measurement of inventory

Question 39

The retail inventory method would include which of the following in the calculation of the goods available for sale at both cost and retail?

Accepted Answer

Purchase returns

Answer

Mark-downs

Answer

Mark-ups

Answer

Freight-in

Question 40

The conventional retail method produces an ending inventory that approximates...

Accepted Answer

Lower of average cost and net realisable value

Answer

Lower of FIFO cost and net realisable value

Answer

Lower of LIFO cost and net realisable value

Answer

Lower of Specific Identification cost and net realisable value

Question 41

According to International Accounting Standards Board (IASB), bearer plants are accounted for as...

Accepted Answer

Property, Plant & Equipment

Answer

Biological Assets with disclosure

Answer

Biological Assets without disclosure

Answer

Inventories

Question 42

The inventory on hand at December 31, 2021 for KPop Company is valued at a cost of P947,800. The following items were not included in this inventory amount:

A. Purchased goods in transit, shipped FOB destination. Invoice price P32,000 which includes freight charges of P1,600.
B. Goods held on consignment by KPop Company at a sales price of P28,000, including sales commission of 20% of the sales price.
C. Goods sold to Ube Company, under terms FOB destination, invoiced for P24,200 which includes P1,000 freight charges to deliver goods. The goods are in transit.
D. Purchased goods in transit, terms FOB shipping point. Invoice price P48,000. Freight costs, P3,000.
E. Goods outs on consignment to Can Company, sales price, P36,400. Shipping cost of P2,000.

Mark-up on cost for all sales is 30%.
What is the correct cost of inventory to be reported in KPop Company's financial statements?

Accepted Answer

P1,046,800

Answer

P1,041,800

Answer

P1,022,400

Answer

P1,078,800

Question 43

Marker Company has the following information pertaining to its merchandise inventory as of December 31, 2021:

Inventory on hand (including merchandise received on consignment of P20,000)      P200,000
Inventory purchased with buyback agreement                                                                                    100,000
Merchandise in transit, FOB shipping point, including P5,000 freight cost                         155,000
Merchandise in transit, Free Alongside, including delivery cost alongside vessel of P6,000 but excluding the cost of shipment of P3,000                                                                                                 200,000
Merchandise in transit, CIF (including insurance costs and freight of P8,000)                  175,000

What amount should Marker Company report as value of its inventory in its 2021 statement of financial position?

Accepted Answer

P757,000

Answer

P749,000

Answer

P763,000

Answer

P857,000

Question 44

The following information is available for Color Me Company for year 2021:

Net sales: 3,600,000
Freight-in: 90,000
Purchase discounts: 50,000
Ending inventory: 240,000

The gross margin is 40% of net sales. 
What is the cost of goods available for sale?

Accepted Answer

P2,400,000

Answer

P2,440,000

Answer

P1,920,000

Answer

P1,680,000

Question 45

On October 01, 2021, Echo Company sold 20,000 gallons of heating oil to Santa Company at P500 per gallon. Ten Thousand gallons were delivered on December 20, 2021 and the remaining 10,000 gallons were delivered on January 10, 2022. Payment terms were: 50% due on October 10, 2021; 25% due on the 1st delivery and the remainder on the second delivery.

What is the amount of revenue should Echo recognize from this sale of inventory?

Accepted Answer

P5,000,000

Answer

P3,500,000

Answer

P10,000,000

Answer

P7,500,000

Question 46

Lunar Company included the following items in inventory:

Materials,                                                                                                                          1,400,000
Advance for materials ordered,                                                                              200,000
Goods in process,                                                                                                             650,000
Unexpired insurance on inventory,                                                                          60,000
Advertising catalogs and shipping cartons,                                                      150,000
Finished goods in factory,                                                                                       2,000,000
Finished goods in entity-owned retail store, including 50% profit on cost,  750,000
Finished goods in hands of consignee including 40% profit on sales, 400,000
Finished goods in transit to customer, shipped FOB destination at cost,  250,000
Finished goods out on approval, at cost                                                              100,000
Unsaleable finished goods at cost                                                                              50,000
Office supplies                                                                                                                       40,000
Materials in transit, shipped FOB shipping point (excluding freight of P30,000),      330,000
Goods held on consignment, at sales price of 200,000, at cost of 150,000

What is the correct amount of inventory?

Accepted Answer

P5,500,000

Answer

P5,375,000

Answer

P5,540,000

Answer

P5,250,000

Question 47

Reverend Company conducted a physical count on December 31, 2021 which showed inventory with a total cost of P5,000,000.

However, further investigation revealed that the following items were excluded from the count.
* Goods sold to a customer which are being held for the customer to call at the customer's convenience with a cost of P200,000.
* A packing case containing a product costing P500,000 standing in the shipping room was not included in the physical count because it was marked "hold for shipping instructions".
* Goods in process costing P300,000 held by an outside processor for further processing.
* A special machine costing P250,000, fabricated to order for a customer, was finished and specifically segregated at the back part of the shipping room on December 31, 2021.
The customer was billed on that date and the machine was excluded from inventory although it was shipped on January 2, 2022.

What is the correct amount of inventory on December 31, 2021?

Accepted Answer

P5,800,000

Answer

P6,000,000

Answer

P6,250,000

Answer

P6,050,000

Question 48

Lagoon Company accumulated the following data for the current year:

Raw materials - beginning inventory,   90,000 units @ P7.00
Purchases,    75,000 units @ P8.00
Purchases,    120,000 units @ P8.50

The entity transferred 195,000 units of raw materials to work in process during the year.

Work in process - beginning inventory,   50,000 units @ P14.00
Direct labor,    P3,100,000
Manufacturing overhead,   P2,950,000
Work in process - ending inventory,  48,000 units @ P15.00

The entity used the FIFO method for valuing inventory.

What is the cost of raw materials used?

Accepted Answer

1,485,000

Answer

1,530,000

Answer

2,250,000

Answer

3,015,000

Question 49

At year-end, Julie Company reported ending inventory at P3,000,000, and the allowance for inventory writedown before any adjustment at P150,000.

What amount of loss on inventory writedown should be included in Cost of Goods Sold?

Accepted Answer

P250,000

Answer

P200,000

Answer

P100,000

Answer

P400,000

Question 50

Groom Company used the FIFO retail method of inventory valuation. The entity provided the following information for the current year:
(see image below)

What is the estimated cost of ending inventory?

Accepted Answer

1,400,000

Answer

1,550,000

Answer

1,460,000

Answer

1,440,000

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