PAS 2 - Inventories

Question 1

to prescribe the accounting
treatment for inventories

Answer 1

IAS 2 objectives

Question 2

IAS 2 objectives provides guidance for determining the cost of _________ and for subsequently recognising an __________, including any write-down to ____________.

Answer 2

inventories

expense

net realisable value

Question 3

IAS 2 objectives also is to provides guidance on the _________ that
are used to assign costs to inventories.

Answer 3

cost formulas

Question 4

include assets held for sale in the ordinary course of business (finished goods), assets in the production process
for sale in the ordinary course of business (work in process),and materials and supplies that are consumed in production
(raw materials).

Answer 4

Inventories [IAS 2.6]

Question 5

However, IAS 2 excludes certain inventories from its scope:
[IAS 2.2]

Answer 5

• work in process arising under construction contracts (see IAS 11 Construction Contracts)
• financial instruments (see IAS 39 Financial Instruments: Recognition and Measurement)
• biological assets related to agricultural activity and agricultural produce at the point of harvest (see IAS 41 Agriculture).

Question 6

IAS 2 does not apply to the measurement of inventories held by: [IAS 2.3]

Answer 6

• producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realisable value (above or below cost) in accordance with well-established practices in those industries. When such inventories are measured at net realisable value, changes in that value are recognised in profit or loss in the period of the change
• commodity brokers and dealers who measure their inventories at fair value less costs to sell.

Question 7

When such inventories are measured at _______ less _________, changes in fair value less costs to sell are recognised in ___________ in the period of the change.

Answer 7

fair value

costs to sell

profit or loss

Question 8

Inventories are required to be stated at the __________ and ______________

Answer 8

lower of cost

net realisable value

IAS 2.9

Question 9

Cost should include all: [IAS 2.10]

Answer 9

• costs of purchase (including taxes, transport, and handling)
  net of trade discounts received
• costs of conversion (including fixed and variable
  manufacturing overheads) and
• other costs incurred in bringing the inventories to their
  present location and condition

Question 10

Borrowing Costs identifies some limited circumstances where borrowing costs (interest) can be included in cost of inventories that meet the definition of a qualifying asset. [IAS 2.17 and IAS 23.4]

Answer 10

IAS 23

Question 11

Inventory cost should not include: [IAS 2.16 and 2.18]

Answer 11

• abnormal waste
• storage costs
• administrative overheads unrelated to production
• selling costs
• foreign exchange differences arising directly on the
  recent acquisition of inventories invoiced in a foreign
  currency
• interest cost when inventories are purchased with
  deferred settlement terms.

Question 12

The ___________________ may be used for the measurement of cost, provided that the results approximate actual cost. [IAS 2.21-22]

Answer 12

standard cost and retail methods

Question 13

For inventory items that are not ___________, specific costs are attributed to the specific individual items of inventory. [IAS 2.23]

Answer 13

interchangeable

Question 14

For items that are interchangeable, IAS 2 allows the _____________ formulas. [IAS 2.25]

Answer 14

FIFO or weighted average cost

Question 15

The ____________, which had been allowed prior to the 2003 revision of IAS 2, is no longer allowed.

Answer 15

LIFO formula

Question 16

should be used for all inventories with similar characteristics as to their
nature and use to the entity.

Answer 16

same cost formula

Question 17

For groups of inventories that have different characteristics, _________ may be justified.

Answer 17

different cost formulas

Question 18

estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. [IAS 2.6]

Answer 18

NRV

Question 19

Any write-down to NRV should be recognised as an _________ in the period in which the write-down occurs.

Answer 19

expense

Question 20

Any reversal should be recognised in the ____________ in the period in which the reversal occurs. [IAS 2.34]

Answer 20

income statement

Question 21

Revenue addresses revenue recognition for the sale of goods.

Answer 21

IAS 18

Question 22

When inventories are sold and revenue is
recognised, ______________________________________

Answer 22

the carrying amount of those inventories is recognised as an expense (often called cost-of-goods-sold).

Question 23

Any write-down to NRV and any inventory losses are also recognised as an _____________ when they occur. [IAS 2.34]

Answer 23

expense

Question 24

Required disclosures: [IAS 2.36]

Answer 24

• accounting policy for inventories
• carrying amount, generally classified as merchandise, supplies, materials, work in progress, and finished goods.
• The classifications depend on what is appropriate for the entity
• carrying amount of any inventories carried at fair value less costs to sell
• amount of any write-down of inventories recognised as an expense in the period
• amount of any reversal of a write-down to NRV and the circumstances that led to such reversal
• carrying amount of inventories pledged as security for liabilities
• cost of inventories recognised as expense (cost of goods sold).

Question 25

IAS 2 acknowledges that some enterprises classify income statement expenses by _______ (materials, labour, and so on) rather than by ___________ (cost of goods sold, selling expense, and so on).

Answer 25

nature function

Question 26

as an alternative to disclosing cost of goods sold expense, IAS 2 allows an entity to disclose operating costs recognised during the period by ___________ (raw materials and consumables, labour costs, other operating costs) and the amount of the ______________). [IAS 2.39]

Answer 26

nature of the cost net change in inventories for the period

Question 27

This is consistent with IAS 1 Presentation of Financial Statements, which allows presentation of expenses by _____________

Answer 27

function or nature.

Question 28

It is one of the methods commonly used to estimate the value of inventory on hand at the end of an accounting period and the cost of goods sold during the period.

Answer 28

First In, First Out

Question 29

FIFIO assumes that inventory purchased or manufactured first is __________ and newer inventory remains __________

Answer 29

sold first unsold

Question 30

FIFO cost of older inventory is assigned to _____________ and that of newer inventory is assigned to _________________

Answer 30

cost of goods sold ending inventory.

Question 31

The _____________ of inventory may not exactly match the first-in, first-out pattern

Answer 31

actual flow

Question 32

When average costing method is used in a periodic inventory system, the _________ and the ____________________ is computed using weighted average unit cost

Answer 32

cost of goods sold cost of ending inventory

Question 33

Weighted average unit cost =

Answer 33

Total cost of units available for sale / Number of units available for sale