Free Inventory Valuation MCQs with Answers
34 Inventory Valuation MCQs from Accounting, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Inventory valuation determines the cost of unsold goods and its effect on cost of sales and profit. The work covers inventory counts, included costs, FIFO and weighted-average costing, and the rule that inventory is reported at the lower of cost and net realisable value, not simply at its expected selling price.
Last updated
34 questions · page 2 of 2
21. Which item is deducted from the purchase price when determining the cost of inventory under IAS 2?
- A. Carriage paid on incoming purchases
- B. Trade discounts received from suppliers
- 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 customer expected to buy the goods
- C. The transport company carrying the goods
- D. The consignor sending 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. A finance expense over the credit period
- B. An inventory purchase discount
- 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. Fair value less costs to sell under IAS 41
- C. Net realisable value under IAS 2
- 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. Were acquired in different accounting years
- B. Are held in separate storage buildings
- C. Were purchased from different suppliers
- D. Have similar nature and use to the entity
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 are shipped by the supplier
- B. When the supplier receives the buyer's payment
- C. When the goods arrive at the buyer's warehouse
- 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. General administrative overhead unrelated to production
- C. Conversion overhead allocated 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 estimated selling price
- C. Its original cost before the write-down
- 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. Interest on a bank loan
- C. Sales commission paid to agents
- D. Direct labour used in production
Explanation: Direct labour changes raw materials into finished goods and is therefore a conversion cost.
Correct answer: Direct labour used in production- A. Rs. 95,000
- B. Rs. 90,000
- C. Rs. 85,000
- D. Rs. 115,000
Explanation: Cost of goods sold equals opening inventory plus purchases minus closing inventory. Thus, Rs. 30,000 + Rs. 90,000 - Rs. 25,000 gives Rs.
Correct answer: Rs. 95,00033. Under IAS 2, inventory is generally tested for a write-down to net realisable value on which basis?
- A. The entire business as one group
- B. Only items purchased during the year
- C. Each individual item or similar group
- D. Only finished goods held for sale
Explanation: IAS 2 generally compares cost with net realisable value for individual inventory items or suitable groups of similar items.
Correct answer: Each individual item or similar group34. When inventory is sold, its carrying amount is generally recognized as an expense in which period?
- A. The period when the inventory is purchased
- B. The period when the inventory is manufactured
- C. The period when cash is collected from customers
- D. The period when the related revenue is recognized
Explanation: The carrying amount of inventory becomes an expense when the related revenue is recognized, applying the matching principle.
Correct answer: The period when the related revenue is recognized