Q: A company purchases 1,000 units of inventory at R20 each, with a trade discount of 10%. Additional costs include R2,000 for transport and R1,000 for handling. What is the total cost of inventory?

$$(1,000 \times 20 \times 0.9) + 2,000 + 1,000 = 21,000$$

Q: A retailer uses the retail method to estimate inventory cost. If the sales price of goods is R100,000 and the average gross profit margin is 30%, what is the estimated cost of inventory?

$$100,000 \times (1 - 0.3) = 70,000$$

Q: Which of the following is the correct formula for Net Realisable Value (NRV) under IAS 2?

$$\text{NRV} = \text{Estimated selling price} - \text{Costs to complete} - \text{Selling costs}$$

Q: A company has finished goods with a cost of R500,000. The estimated selling price is R480,000, and costs to complete and sell are R20,000. At what value should the inventory be reported?

$$\text{NRV} = 480,000 - 20,000 = 460,000$$; Inventory should be reported at R460,000.

Q: A company has the following inventory data: Opening inventory: 100 units at R10 each; Purchases: 200 units at R12 each; Sales: 150 units. Using the weighted average method, what is the cost per unit for the remaining inventory?

$$\frac{(100 \times 10) + (200 \times 12)}{100 + 200} = \frac{1,000 + 2,400}{300} = 11.33$$

Question 1

According to IAS 2, which of the following best describes the definition of inventories?

Accepted Answer

Assets held for sale in the ordinary course of business, in the process of production for sale, or in the form of materials to be consumed in the production process or rendering of services.

Question 2

Which of the following costs should NOT be included in the cost of inventory under IAS 2?

Accepted Answer

Abnormal manufacturing spoilage costs

Question 3

A company purchases 1,000 units of inventory at R20 each, with a trade discount of 10%. Additional costs include R2,000 for transport and R1,000 for handling. What is the total cost of inventory?

Accepted Answer

$$(1,000 	imes 20 	imes 0.9) + 2,000 + 1,000 = 21,000$$

Question 4

Which cost formula is NOT permitted under IAS 2 for inventory valuation?

Accepted Answer

Last-in, first-out (LIFO)

Question 5

A retailer uses the retail method to estimate inventory cost. If the sales price of goods is R100,000 and the average gross profit margin is 30%, what is the estimated cost of inventory?

Accepted Answer

$$100,000 	imes (1 - 0.3) = 70,000$$

Question 6

Which of the following is the correct formula for Net Realisable Value (NRV) under IAS 2?

Accepted Answer

$$	ext{NRV} = 	ext{Estimated selling price} - 	ext{Costs to complete} - 	ext{Selling costs}$$

Question 7

A company has finished goods with a cost of R500,000. The estimated selling price is R480,000, and costs to complete and sell are R20,000. At what value should the inventory be reported?

Accepted Answer

$$	ext{NRV} = 480,000 - 20,000 = 460,000$$; Inventory should be reported at R460,000.

Question 8

Which of the following is a disclosure requirement for inventories under IAS 2?

Accepted Answer

The accounting policy adopted for measuring inventories, including the cost formula used.

Question 9

If a company uses the FIFO method, which units are assumed to be sold first?

Accepted Answer

The oldest units purchased or produced.

Question 10

A company has the following inventory data: Opening inventory: 100 units at R10 each; Purchases: 200 units at R12 each; Sales: 150 units. Using the weighted average method, what is the cost per unit for the remaining inventory?

Accepted Answer

$$\frac{(100 	imes 10) + (200 	imes 12)}{100 + 200} = \frac{1,000 + 2,400}{300} = 11.33$$

Question 11

Which of the following is an example of a cost that should be capitalized as part of inventory under IAS 2?

Accepted Answer

Non-refundable import duties

Question 12

Under IAS 2, when should inventory write-downs to net realisable value be reversed?

Accepted Answer

When the circumstances that caused the write-down no longer exist and the NRV has increased.

Question 13

Which of the following statements about the periodic inventory system is correct?

Accepted Answer

Inventory and cost of sales are determined at the end of the period by physical count.

Question 14

A company has 500 units of inventory at a cost of R15 each. The net realisable value is R12 per unit. What is the total write-down to be recognized?

Accepted Answer

$$500 	imes (15 - 12) = 1,500$$

Question 15

Which of the following is a key difference between 'full IFRS' and 'IFRS for SMEs' regarding inventory measurement?

Accepted Answer

'IFRS for SMEs' allows the use of the most recent purchase price as an acceptable technique for measuring inventory.

Question 16

Which of the following is NOT a reason for writing down inventory to net realisable value?

Accepted Answer

Increase in selling prices

Question 17

A company allocates joint costs to products based on their physical quantities. If Product A has 40,000 kg, Product B has 60,000 kg, and Product C has 90,000 kg, and the total joint cost is R688,000, what is the joint cost allocated to Product B?

Accepted Answer

$$(60,000 / 190,000) 	imes 688,000 = 217,263$$

Question 18

Which of the following is a scenario where inventory should be measured at the contract price rather than the normal selling price?

Accepted Answer

Firm sales contracts

Question 19

Which of the following is a requirement for inventory recognition under GRAP but not specifically under IAS 2?

Accepted Answer

It is probable that future economic benefits or service potential will flow to the entity and the cost can be measured reliably.

Inventory – IAS 2: Measurement, Recognition, and Disclosure (FAC2601 Study Notes)

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