Inventory Flashcards
As a result of a water leak during July, a portion of XYZ Ltd.’s inventory was damaged. After assessing the damaged goods, the following values were determined on July 31:
What inventory value should be reported at July 31?
Answer d) is correct because the lower of cost and NRV applied on an item-by-item basis is calculated as follows:
Which of the following statements regarding inventory is true?
a) Under IFRS, companies must capitalize borrowing costs, whereas ASPE allows companies to choose whether to capitalize or expense them.
b) There are no differences between IFRS and ASPE.
c) Under IFRS, companies must capitalize shipping costs to receive inventory, whereas ASPE allows companies to choose whether to capitalize or expense them.
d) Under IFRS, companies must capitalize manufacturing overhead, whereas ASPE allows companies to choose whether to capitalize or expense them.
Answer a) is correct. Under IFRS, companies must capitalize borrowing costs, whereas ASPE allows companies to choose whether to capitalize or expense them.
Red Rocket Inc. had a beginning inventory on January 1 of 300 boxes of fuses at a cost of $9 per box. During the year, the following transactions occurred:
Determine ending inventory using the FIFO (first in, first out) cost formula.
Answer a) is correct because ending inventory of $1,900 is determined as follows:
The following information is provided for a construction company. Calculate the ending balance in inventory.
Question 3 options:
a) $330,667
b) $257,298
c) $205,317
d) $782,875
Answer c) is correct because this calculation [($415,875 + $350,750 + $16,250) – ($750,825 / 1.3)] = $205,317 correctly accounts for the purchases of inventory items and the cost of goods sold.
Answer a) is incorrect. This calculation [($415,875 + $350,750 + $16,250 + $125,350) – ($750,825 / 1.3)] incorrectly includes the tools and equipment, which are capital assets, not inventory.
Kaltech manufactures toolboxes for trucks in Sudbury, and maintains a head office in Toronto. The toolboxes are painted in a paint booth that requires Kaltech to adhere to strict safety standards, including always having a safety supervisor on site. Kaltech has a manufacturing facility and a separate sales and administration building.
Which of the following would be included in the value of finished goods inventory?
a) Safety supervisor’s wages
b) Amortization on the corporate headquarters
c) Storage costs, once production is complete
d) CEO’s wages
Answer a) is correct. The safety supervisor’s wages are a direct cost and should be included in the value of inventory.
