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level: Inventory

Questions and Answers List

level questions: Inventory

Question	Answer
What information should be provided in the disclosure notes relating to inventory?	The accounting policies for inventory, the classified carrying amounts,
Cost of Goods Sold =	Opening inventory + Purchases – Closing inventory
Net means what?	Exclusive
What should the cost of inventory include?	The cost of purchase, cost of conversions, cost of transport of the purchases.
What are the key accounting standards examinable in this paper relating to inventory?	IAS 2
How should inventory be valued?	The lower of cost and net realisable value.
How is the Net Realisable Value (NRV) calculated?	Selling price less any extra costs that there are in order to get the goods in a sellable state.
What is Cost in terms of inventory?	The cost of getting the goods to the state that they are in.
In accordance with IAS 2, which methods of inventory valuation are acceptable?	FIFO and AVCO
What information should be provided in the disclosure notes relating to inventory?	The accounting policies for inventory, the classified carrying amounts,
Net Residual Value =	Selling price less any extra costs
Cost =	What has been spent so far
How should inventory be valued according to IAS 2?	The lower of Cost and NRV
What impact will overvalued inventory have on assets?	Assets will be overvalued.
What impact will overvalued inventory have on Profit?	Profit will be overvalued
What impact will undervalued inventory have on assets?	Assets will be undervalued
What impact will undervalued inventory have on Profit?	Profit will be undervalued