Mindanao State University - General Santos

COURSE TITLE - ACCTG 001

PAS 2 Inventories

PROBLEM 2: MULTIPLE CHOICE

1)Which of the following is not included as part of the cost of an inventory?

 

1. 1. Purchase cost, net of trade discount

 

1. 2. Direct labor cost

 

1. 3. Freight in

 

1. 4. Selling cost

 

 

2. Conversion costs do not include which of the following costs?

 

1. 1. Direct materials                                                                c. Production

 

1. 2. Direct labor                                                                         d. All of these are included

 

 

3. These deal with the computation of cost of sales and cost of ending inventory.

 

1. 1. net realizable value                                                         c. cost formulas

 

1. 2. perpetual inventory system                                        d.. costing

 

 

4. Entity A’s inventories consist of items that are ordinarily interchangeable. According to PAS 2, which of the following cost formulas shall Entity A use?
   1. Specific identification                                                     c. Weighted Average

 

1. 2. FIFO                                                                                       d. b or c

5. Which of the following statements is incorrect regarding the use of cost formulas?

 

5. 1. PAS 2 requires the use of specific identification of costs for inventories that are not ordinarily interchangeable.
   2. Entities may choose between FIFO and Weighted Average cost formulas for inventories that are ordinarily interchangeable.
   3. Different cost formulas may be used for each class of inventory with dissimilar nature and use.
   4. Only one formula shall be used for all inventories regardless of differences in their nature and use.
6. Entity A’s buys and sells two types of products – Product A and Product B. Items of Product A are not ordinarily interchangeable while items of Product B are ordinarily interchangeable. According to PAS 2, what cost formula shall Entity A use? (specific identification ‘SI’, first-in, first-out ‘FIFO’, weighted average ‘WA’)

Product A                                                                                                   Product B

 

1. 1. SI                                                                                              FIFO or WA

 

1. 2. SI, FIFO, or WA                                                                   SI, FIFO, or WA

 

1. 3. FIFO                                                                                        WA

 

1. 4. SI                                                                                              SI

 

 

7. Entity A is a distributor of oil. Entity A’s inventories are ordinarily interchangeable. Entity A maintains a specific level of inventory such that the latest purchases are the ones dispatched first to the sales outlets. Consequently, the latest purchases are sold first. Which of the following cost formulas shall be used by Entity A?
   1. Last-in. first-out (LIFO)                                                    c. Weighted Average

 

1. 2. FIFO                                                                                        d. b or c

 

 

8. In which of the following instances is a write-down of inventories to net realizable value may not be required?
   1. the inventories are damaged

 

1. 2. the inventories have become wholly or partially obsolete