All Free Accounting MCQs with Answers
Every Accounting question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
1,971 questions · page 95 of 99
- A. Using the highest possible production level
- B. Using normal operating production capacity
- C. Using the current selling price of goods
- D. Using the quantity sold during the period
Explanation: Fixed production overhead is allocated using the normal capacity of production facilities.
Correct answer: Using normal operating production capacity- A. A direct addition to inventory cost
- B. A deferred production expense
- C. An expense of the current period
- D. A reduction from trade receivables
Explanation: Abnormal wastage is not a normal cost of bringing inventory to its present condition.
Correct answer: An expense of the current period- A. An expense in the period of the write-down
- B. A charge against share capital
- C. A direct increase in retained earnings
- D. A liability payable to customers
Explanation: A write-down recognizes that the inventory is no longer expected to recover its original carrying cost.
Correct answer: An expense in the period of the write-down1884. If the net realisable value of inventory later increases, an earlier write-down under IAS 2 may be:
- A. Reversed without any upper limit
- B. Reversed only up to the original cost
- C. Transferred permanently to share capital
- D. Ignored until the inventory is sold
Explanation: IAS 2 permits reversal when the circumstances causing the write-down no longer exist.
Correct answer: Reversed only up to the original cost- A. Each unit keeps its original purchase price
- B. All units are valued at an average unit cost
- C. The latest purchase price applies to every unit
- D. The earliest purchase price applies to every unit
Explanation: The weighted average method combines the cost of available units and divides it by the number of available units.
Correct answer: All units are valued at an average unit cost- A. Rs. 17.00
- B. Rs. 18.00
- C. Rs. 18.50
- D. Rs. 19.00
Explanation: The total cost is Rs. 1,200 plus Rs. 2,400, or Rs. 3,600, for 200 units. The weighted average cost is therefore Rs.
Correct answer: Rs. 18.00- A. Interest on a routine bank overdraft
- B. Storage after goods are ready for sale
- C. Import duty paid on purchased materials
- D. Commission paid to sales representatives
Explanation: Import duties that cannot be recovered are part of the purchase cost of inventory.
Correct answer: Import duty paid on purchased materials- A. Added to the cost of each unit produced
- B. Recognized as an expense of the period
- C. Included in trade discount received
- D. Recorded as a reduction in revenue
Explanation: Fixed overhead is allocated using normal capacity, so unusually low production does not cause excessive overhead to be loaded into…
Correct answer: Recognized as an expense of the period- A. Their purchase price has increased sharply
- B. The related finished goods will sell above their cost
- C. They have been held for more than one year
- D. The production manager expects higher wages
Explanation: Raw materials are not written below cost when the finished products in which they will be used are expected to sell at or above cost.
Correct answer: The related finished goods will sell above their cost1890. Which item is deducted from the purchase price when determining the cost of inventory under IAS 2?
- A. Trade discounts received from suppliers
- B. Carriage paid on incoming purchases
- C. Import duties paid on purchases
- D. Non-refundable taxes paid on purchases
Explanation: Trade discounts and similar rebates reduce the purchase cost of inventory.
Correct answer: Trade discounts received from suppliers- A. Rs. 800
- B. Rs. 880
- C. Rs. 960
- D. Rs. 1,120
Explanation: After the purchase, the average cost is Rs. 12 per unit, calculated from Rs. 2,400 divided by 200 units.
Correct answer: Rs. 960- A. The consignee receiving the goods
- B. The consignor sending the goods
- C. The transport company carrying the goods
- D. The customer expected to buy the goods
Explanation: The consignor retains ownership of goods sent on consignment until the consignee sells them.
Correct answer: The consignor sending the goods- A. An inventory purchase discount
- B. A finance expense over the credit period
- C. A direct addition to closing inventory
- D. A reduction of the quantity purchased
Explanation: The inventory is initially recorded at its cash price equivalent. The excess arising from deferred payment is recognized as interest or…
Correct answer: A finance expense over the credit period- A. Always produces a value below actual cost
- B. Reasonably approximates the actual cost of inventory
- C. Eliminates the need for physical inventory counts
- D. Is applied only to imported inventory items
Explanation: Standard costs may be used for convenience when they are regularly reviewed and remain close to actual costs.
Correct answer: Reasonably approximates the actual cost of inventory- A. Historical purchase cost under IAS 2
- B. Net realisable value under IAS 2
- C. Fair value less costs to sell under IAS 41
- D. Replacement cost under IAS 16
Explanation: IAS 41 generally measures agricultural produce at fair value less costs to sell at the point of harvest.
Correct answer: Fair value less costs to sell under IAS 41- A. Have similar nature and use to the entity
- B. Are held in separate storage buildings
- C. Were purchased from different suppliers
- D. Were acquired in different accounting years
Explanation: Inventories with a similar nature and use normally receive the same cost formula for consistency.
Correct answer: Have similar nature and use to the entity- A. When the goods arrive at the buyer's warehouse
- B. When the supplier receives the buyer's payment
- C. When the goods are shipped by the supplier
- D. When the buyer sells the goods to a customer
Explanation: FOB shipping point normally transfers ownership and risk to the buyer when the seller dispatches the goods.
Correct answer: When the goods are shipped by the supplier- A. Direct labour used in production
- B. Conversion overhead allocated to production
- C. General administrative overhead unrelated to production
- D. Freight paid to transport purchased goods
Explanation: General administrative overhead that does not contribute to bringing inventory to its present condition is excluded from inventory cost.
Correct answer: General administrative overhead unrelated to production- A. Its current replacement cost
- B. Its original cost before the write-down
- C. Its estimated selling price
- D. Its previous year's closing balance
Explanation: A reversal is limited so that the inventory does not exceed the cost it would have had if no write-down had been recognized.
Correct answer: Its original cost before the write-down- A. Direct materials used in production
- B. Direct labour used in production
- C. Sales commission paid to agents
- D. Interest on a bank loan
Explanation: Direct labour changes raw materials into finished goods and is therefore a conversion cost.
Correct answer: Direct labour used in production