IAS 2/MFRS 102 Inventory Quiz

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Questions and Answers

Which of the following items is not considered inventory under IAS 2/MFRS 102?

Work in progress

Finished goods

Equipment used in production (correct)

Raw materials

What is the primary objective of IAS 2/MFRS 102?

To prescribe accounting treatment for inventories (correct)

To establish criteria for recognizing expenses

To establish criteria for recognizing revenue

To prescribe accounting treatment for property, plant, and equipment

According to IAS 2/MFRS 102, inventory should be measured at the lower of:

Market price or replacement cost

Fair value or replacement cost

Historical cost or replacement cost

Cost or net realizable value (correct)

Which of the following costs should be included in the cost of inventory under IAS 2/MFRS 102?

Direct costs of conversion Signup and view all the answers

Net realizable value (NRV) is defined as:

Selling price less cost to complete and sell Signup and view all the answers

Which of the following is not an example of inventory under IAS 2/MFRS 102?

Property, plant, and equipment used in production Signup and view all the answers

Under IAS 2/MFRS 102, when should an inventory write-down be reversed?

When the selling price increases Signup and view all the answers

Which of the following cannot be included in the cost of inventory under IAS 2/MFRS 102?

Selling and distribution costs Signup and view all the answers

IAS 2/MFRS 102 excludes the valuation of inventories for which industry?

Agricultural products after harvest Signup and view all the answers

Under the FIFO (First-In, First-Out) method, which inventory items are assumed to be sold first?

The oldest items Signup and view all the answers

The weighted average cost method is based on:

The total cost of inventory divided by the number of units available Signup and view all the answers

Which of the following inventory costs should not be capitalized under IAS 2/MFRS 102?

Administrative overheads not related to production Signup and view all the answers

What is the correct treatment for inventory when cost exceeds net realizable value under IAS 2/MFRS 102?

Inventory is carried at NRV Signup and view all the answers

IAS 2/MFRS 102 applies to which of the following inventories?

Finished goods in a manufacturing company Signup and view all the answers

According to IAS 2/MFRS 102, inventory write-downs to net realizable value should be recognized:

As an expense in the income statement Signup and view all the answers

Under IAS 2/MFRS 102, which of the following best describes the treatment of borrowing costs related to inventories?

Borrowing costs can only be capitalized if the inventory is part of a qualifying asset Signup and view all the answers

Study Notes

Inventory Concepts Under IAS 2/MFRS 102

Equipment used in production is not classified as inventory.
The main purpose of IAS 2/MFRS 102 is to prescribe accounting treatment specifically for inventories.

Inventory Measurement

Inventory must be measured at the lower of cost or net realizable value (NRV).
The cost of inventory includes direct costs of conversion but excludes selling costs and administrative overheads unrelated to production.

Understanding Net Realizable Value (NRV)

NRV is defined as the selling price less the cost required to complete and sell the inventory.

Types of Inventory

Goods held for resale and materials in the production process are considered inventory.
Property, plant, and equipment used in production do not qualify as inventory.

Inventory Write-Downs

An inventory write-down can be reversed when the selling price increases.
Selling and distribution costs cannot be capitalized in the inventory.

Exclusions in Inventory Valuation

IAS 2/MFRS 102 does not cover the valuation of agricultural products after harvest.

Inventory Costing Methods

The FIFO (First-In, First-Out) method assumes the oldest inventory items are sold first.
The weighted average cost method calculates inventory cost using the total cost divided by the number of units available.

Capitalization of Costs

Administrative overheads not related to production should not be capitalized to inventory.
Direct materials, direct labor, and factory overheads directly attributable to production are capitalized.

Inventory Treatment Based on Valuation

If inventory cost exceeds NRV, it should be carried at NRV.

Scope of IAS 2/MFRS 102

IAS 2/MFRS 102 applies to finished goods in manufacturing but excludes biological assets and financial instruments.

Treatment of Inventory Write-Downs

Inventory write-downs to NRV should be recognized as expenses in the income statement.

Borrowing costs can only be capitalized if the inventory is part of a qualifying asset and not an immediate expense.

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Description

Test your knowledge on IAS 2/MFRS 102 and its implications for inventory accounting. This quiz covers key concepts, including what items are considered inventory and the primary objectives of the standard. Evaluate your understanding of important accounting principles.