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Questions and Answers
What method is used to value contracts in progress when considering profit?
What method is used to value contracts in progress when considering profit?
Which valuation method is used for finished goods if the manufacturing price is lower than market value?
Which valuation method is used for finished goods if the manufacturing price is lower than market value?
What happens to write-offs according to the outlined inventory valuation processes?
What happens to write-offs according to the outlined inventory valuation processes?
In which method is the gained profit added to the manufacturing price for contracts in progress?
In which method is the gained profit added to the manufacturing price for contracts in progress?
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What does 'work in progress' refer to in inventory valuation?
What does 'work in progress' refer to in inventory valuation?
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What should be used when the market value is less than the cost of acquisition for inventory valuation?
What should be used when the market value is less than the cost of acquisition for inventory valuation?
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Which inventory valuation method is NOT mentioned in the provided content?
Which inventory valuation method is NOT mentioned in the provided content?
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When should write-offs be considered in the inventory valuation process?
When should write-offs be considered in the inventory valuation process?
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Which of the following statements about FIFO and LIFO is accurate?
Which of the following statements about FIFO and LIFO is accurate?
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What is a primary advantage of using the weighted average method in inventory valuation?
What is a primary advantage of using the weighted average method in inventory valuation?
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What is the cost of goods sold using the LIFO method?
What is the cost of goods sold using the LIFO method?
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How much is the operating profit when using the weighted average price method?
How much is the operating profit when using the weighted average price method?
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Which method shows the lowest operating profit?
Which method shows the lowest operating profit?
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What is the amount for closing inventory calculated using the FIFO method?
What is the amount for closing inventory calculated using the FIFO method?
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What is the total revenue for the academic year?
What is the total revenue for the academic year?
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Which inventory valuation method results in a decrease of 600.00 EUR in inventory?
Which inventory valuation method results in a decrease of 600.00 EUR in inventory?
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What is the total operating expenses reported?
What is the total operating expenses reported?
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What is the value of the opening inventory?
What is the value of the opening inventory?
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What is the change in inventory for the overall weighted average price method?
What is the change in inventory for the overall weighted average price method?
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Which valuation method resulted in a closing inventory amount of € 1 600,00?
Which valuation method resulted in a closing inventory amount of € 1 600,00?
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What is the change in inventory calculated in the example?
What is the change in inventory calculated in the example?
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What is the closing value of inventory according to the market value?
What is the closing value of inventory according to the market value?
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What is the cost of goods sold as shown in the example?
What is the cost of goods sold as shown in the example?
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How much is the value of closing inventory listed in the balance sheet (BS)?
How much is the value of closing inventory listed in the balance sheet (BS)?
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What would be the corresponding valuation method for a closing value of € 1 600,00?
What would be the corresponding valuation method for a closing value of € 1 600,00?
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Which value represents the market value for the closing inventory?
Which value represents the market value for the closing inventory?
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What happens to inventory accounts during the accounting period?
What happens to inventory accounts during the accounting period?
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Which account reflects the cost of goods sold at the end of an accounting period?
Which account reflects the cost of goods sold at the end of an accounting period?
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What must be done at the end of the accounting period regarding inventories?
What must be done at the end of the accounting period regarding inventories?
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Where are inventories listed within the balance sheet?
Where are inventories listed within the balance sheet?
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What is the purpose of adjusting inventory values at the end of the accounting period?
What is the purpose of adjusting inventory values at the end of the accounting period?
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Which of the following accounts is NOT impacted by an adjustment to inventory at the end of the accounting period?
Which of the following accounts is NOT impacted by an adjustment to inventory at the end of the accounting period?
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What action is performed to ensure the correct value of inventories on the balance sheet?
What action is performed to ensure the correct value of inventories on the balance sheet?
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Which type of inventory consists of unfinished goods?
Which type of inventory consists of unfinished goods?
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Study Notes
Valuation of Purchased Inventories
- Inventory is valued at the end of the accounting period based on physical stock-taking.
- The correct value for inventory is needed for the balance sheet.
- The correct value for the cost of goods sold is needed for the income statement.
- Inventory is recorded in the balance sheet under current assets.
- Inventory accounts include: raw materials and consumables, goods for resale, work in progress, and finished goods.
- The cost of acquisition is the price paid for the inventory.
- Market value is the current price for the inventory.
- If the market value is less than the cost of acquisition, the inventory is written down to the lower value.
- Reversal of write-offs occurs if the market value subsequently increases above the cost of acquisition.
- The specific identification method values inventory based on the specific cost of each item.
- The FIFO (First-In, First-Out) method assumes that the oldest inventory is sold first.
- The LIFO (Last-In, First-Out) method assumes that the newest inventory is sold first.
- The weighted average method calculates the average cost of all inventory items.
- The weighted average method includes the overall weighted average price method and the moving weighted average price method.
Determination of Change in Inventory
- The change in inventory is the difference between the opening inventory and the closing inventory.
- If the opening inventory has a value of €1,000 and the closing inventory has a value of €1,600, the change in inventory is €600.
Market Test
- This test is used to determine if the market value of the inventory is less than the cost of acquisition.
- The company OMEGA KAPPA plc has an opening inventory of €1,000.
- Using the FIFO method, the closing inventory is €1,600.
- Using the market value, the closing inventory is €1,120.
- In this case, the market value is less than the cost of acquisition.
- The inventory is written down to the market value of €1,120.
Inventory Valuation Methods
- Common inventory valuation methods include FIFO, LIFO, and weighted average.
- FIFO values inventory based on the principle that the oldest inventory is sold first.
- LIFO values inventory based on the principle that the newest inventory is sold first.
- The weighted average method calculates the average cost of all inventory items.
Valuation of Manufactured Inventories and Contracts in Progress
- Manufactured inventories and contracts in progress are valued using the manufacturing price.
- The manufacturing price is the cost of producing the goods or services.
- If the market value is less than the manufacturing price, the inventory is written down to the lower value.
- Direct costing includes only direct manufacturing costs in the cost of goods sold.
- Full costing includes both direct and indirect manufacturing costs in the cost of goods sold.
- Contracts in progress are valued using the percentage of completion method or the completed contract method.
- The percentage of completion method recognizes revenue and profit as work progresses on the contract.
- The completed contract method recognizes revenue and profit only when the contract is complete.
Introduction to End-of-Period Entries
- All purchases are recorded on an expense account during the accounting period.
- All sales are recorded on a revenue account during the accounting period.
- The balance of the inventory account remains unchanged during the accounting period.
- At the end of the accounting period, the inventory account is adjusted for changes in inventory.
- Physical stock-taking is used to determine the value of inventory on hand.
- Inventory is valued at the lower of cost or market value.
- The cost of goods sold is calculated using the inventory valuation method chosen.
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Description
This quiz covers the essentials of inventory valuation at the end of the accounting period. It explains various methods such as FIFO and LIFO, and the importance of correctly assessing inventory for financial statements. Test your understanding of inventory accounts and valuation processes.
