IA

B

A private jet is expected to be used over a period of 7 years. The engine of the jet has a useful life of 5 years. The tires are replaced every 2 years. The private jet shall be depreciated using the straight linemethod over a. 7 years composite useful life b. 5 years for the engine. 2 years for the tires, and 7 years applied to the balance cost of the jet c. 2 years based on conservatism d. 5 years based on a simple average

B

An entity acquired equipment and used the straight line depreciation with a useful life of 15 years and no residual value. After 4 years of usingthe asset, the entity estimated that the remaining life of the equipmentwas six years with no residual value. How should this change be accounted for? a. Revising future depreciation annually to equal the original cost divided by six b. Revising future depreciation annually to equal the carrying amount after 4 years divided by six c. Disclosing the effect of the change one each years' earnings but maintaining the depreciation as originally determined d. Revising future depreciation annually to equal the depreciable amount divided by six

C

An entry debiting inventory and crediting cost of goods sold would be made when merchandise is a. Sold and periodic inventory method is used. b. Sold and perpetual inventory method is used. c. Returned and perpetual inventory method is used. d. Returned and periodic inventory method is used.

D

An exception to the general rule that costs should be charged to expense in the period incurred is a. Commissions incurred in connection with sale of inventory b. General and administrative fixed costs in connection with the purchase of inventory c. Interest costs for financing of inventories that are routinely manufactured in large quantities on a repetitive basis. d. Factory overhead costs incurred on a product manufactured but not sold during the current period.

C

Consider the following statements: I. An item of PPE is classified as "held for sale" if the asset is available for immediate sale in the present condition within one month from the date of classification as held for sale. II. Property classified as held for sale shall be excluded from PPE but presented separately as current asset. III. An entity shall measure a noncurrent asset classified as held for sale at the fair value less cost of disposal. IV. A noncurrent asset/PPE classified as held for sale shall not be depreciated. Which of the above statements is/are incorrect? a. I only b. I and II c. I and III d. II and III e. III and IV f. III only g. None

A

Consider the following statements: I. The carrying amount of an item of PPE shall be derecognized on disposal or when no future economic benefits are expected from the use of disposal. II. A property is said to be fully derecognized when the carrying amount is equal to zero, or the carrying amount is equal to the residual value. III. An entity may no longer continue to use an asset when it has been fully depreciated. IV. The cost of full depreciated asset remaining in service and the related accumulated depreciation ordinarily shall not be removed from the accounts. Which of the above statements is/are incorrect? a. II and III b. III only c. III and IV d. I and IV e. None

A

Consider the following statements: Statement I: Capitalization of costs ceases when the PPE is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying PPE are not capitalized. Statement II: The cost of a self-constructed asset includes internal profits (i.e. savings on self-construction) and excludes the cost of abnormal amounts of wasted material, labor, or other resources incurred in self-constructing the asset. a. Only Statement 1 is correct. b. Only Statement 2 is correct. c. Both statements are correct. d. Both statements are incorrect.

C

Entities must allocate the cost of all goods available for sale between a. The cost of goods on hand at the beginning of the period as reported in the statement of financial position (SOFP) and the cost of goods acquired or produced during the period. b. The cost of goods on hand at the end of the period as reported in the SOFP and the cost of goods acquired or produced during the period. c. The income statement and the SOFP d. All of the choices are correct.

C

Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are a. Expense on the part of the consignor b. Expense on the part of the consignee c. Inventoriable by the consignord. Inventoriable by the consignee

B

How is the gross profit method used as it relates to inventory valuation? a. To verify the accuracy of the perpetual inventory record b. To verify the accuracy of the physical inventory c. To estimate cost of goods sold d. To provide an inventory value under FIFO

C

If there is a change from double declining balance to straight line method a. The accumulated depreciation is adjusted to the appropriate balance through retained earnings based on the straight line method b. The accumulated depreciation is adjusted to the appropriated balance through net income based on the straight line method c. The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the remaining useful life using the straight line method d. The accumulated depreciation is not adjusted but the remaining carrying amount is allocated over the original useful life using the straight line method

A

Lower of cost or net realizable value as it applies to inventory is best described as the a. reporting of a loss when there is a decrease in the future utility below the original cost b. method of determining the cost of goods sold c. assumption to determine inventory flow d. change in inventory value to net realizable value.

D

Statement I. In FAS (free alongside), the seller assumes all expenses in delivering the goods to the dock next to (alongside) the carrier on which the goods are to be shipped; the seller assumes loading and shipping costs; and the title passes upon shipment to the carrier. Statement II. In FOB destination, the seller assumes all expenses until the goods are unloaded from the carrier, at which time title passes to the buyer. a. Only Statement I is correct. b. Only Statement II is correct. c. Both statements are correct. d. Both statements are incorrect.

B

Statement I: The cost of inventories may not be recoverable when the inventories are damaged or have become wholly or partially obsolete, when the selling prices have declined, and when the estimated cost of completion or the estimated cost of disposal has decreased. Statement II: Commodities of broker-traders (those who buy and sell commodities for others or on their own account) are measured at fair value less cost of disposal. a. Only Statement 1 is true. b. Only Statement 2 is true. c. Both statements are true d. Both statements are false.

B

The costing of inventory must be deferred until the end of the reporting period under which of the following method of inventory valuation? a. Moving average b. Weighted average periodic c. FIFO perpetual d. either FIFO perpetual or moving average

A

The credit balance that arises when a loss on purchase commitment is recognized should be a. Presented as a current liability b. Subtracted from ending inventory c. Presented as either current or contingent liability d. Presented in the income statement

B

The straight line depreciation is not appropriate for a. An entity that is neither expanding nor contracting an investment in equipment because it is replacing equipment as the equipment depreciates b. Equipment on which repairs and maintenance increase substantially with age c. Equipment with useful life that is not affected by the amount of use d. Equipment used consistently every period

A

When agricultural crops have been harvested or mineral ores have been extracted and a sale is assured under a forward contract or government guarantee, such inventories are measured at a. Net realizable value b. Cost c. Standard cost d. Relative sales price

A

When determining the unit cost of an inventory item, which of the following should not be included? a. Interest on loan obtained to purchase the item b. Commission paid when purchasedc. Labor cost of the item when manufacturedd. Depreciation of plant equipment used in manufacturing the item

D

Which of the following costs should be included in inventory valuation? a. Administrative costs b. Abnormal material usage c. Storage costs relating to finished goods d. Fixed production overhead

C

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer? a. Raw materials b. Work in process c. Finished goods d. Factory supplies

D

Which of the following is CORRECT? a. Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are inventoriable by the consignee. b. Under the perpetual inventory method, purchase returns are recorded by debiting accounts payable and crediting purchase returns and allowances. c. Shares and bonds held for resale by a brokerage firm should not be reported as inventory. d. Goods in transit purchased FOB destination, goods received from another entity on consignment and goods in transit to a customer sold FOB shipping point should be excluded from inventory.

C

Which of the following is CORRECT? a. The cost of inventories does not include storage cost necessary in the production process before a further production stage. b. An entry debiting inventory and crediting cost of goods sold would be made when merchandise in returned and the periodic inventory method is used. c. After a physical inventory count, inventory is credited for any missing inventory, under the perpetual inventory method. d. Land acquired for resale by a real estate firm as well as partially completed goods should not be reported as inventory.

B

Which of the following is CORRECT? a. The credit balance that arises when a loss on purchase commitment is recognized should be subtracted from ending inventory. b. When the cost of goods sold method is used to record the inventory at net realizable value, the NRV for ending inventory is substituted for cost and the loss is buried in cost of goods sold. c. LCNRV should always be equal to net realizable value which is the estimated selling price less estimated cost to complete and estimated cost of disposal. d. Reversal of inventory writedown is prohibited.

C

Which of the following is INCORRECT? a. IFRS prohibits LIFO cost flow assumptions. b. FIFO is the inventory pricing procedure in which the oldest costs rarely have an effect on the ending inventory. c. In a period of falling prices, weighted average method provides the lowest amount of net income. d. In a period of falling prices, FIFO generally provides the lowest amount of ending inventory.

C

Which of the following is a characteristic of a perpetual inventory system? a. Inventory purchases are debited to purchases account b. Inventory records are not kept for every item c. Cost of goods sold is recorded each sale d. Cost of goods sold is determined as the amount of purchases less the change in inventory

E

Which of the following is incorrect? a. An entity shall not classify as held for sale a noncurrent asset that is to be abandoned. b. Temporary idle activity or abandonment does not preclude depreciating the asset since future benefits are consumed not only through usage, but also through wear and tear, and obsolescence. c. Noncurrent asset to be abandoned includes an item of PPE that is to be used until the end of the economic life. d. A noncurrent asset that is to be abandoned shall not be classified as held for sale because the carrying amount would be recovered principally through continuing use. e. Incidental or intervening operations (which occur before or during the construction or development activities) are necessary to bring a PPE item to the location and condition for the intended use.

A

Which of the following is incorrect? a. The conventional retail method produces an ending inventory that approximates lower of cost and net realizable value. b. Ending inventory cost is lower if net markups are included and net markdowns are excluded in computing the cost ratio. c. Purchase return is included in the calculation of goods available for sale at both cost and retail. d. Higher retail prices would cause a decrease in the cost ratio as used in the retail inventory method. e. Normal shortage is deducted from goods available for sale at retail, and is usually absorbed or included in cost of goods sold.

D

Which of the following would not be reported as inventory? a. Land acquired for resale by a real estate firm b. Shares and bonds for resale by a brokerage firm c. Partially completed goods held by a manufacturing entity d. Machinery acquired by a manufacturing entity for use in the production process

D

Which of the following is not true of the perpetual inventory method? a. Purchases are recorded as debit to the inventory account b. The journal entry to record a sale includes a debit to cost of goods sold and a credit to inventory c. After a physical inventory count, inventory is credited for missing inventory d. Purchase returns are recorded by debiting accounts payable and crediting purchase returns and allowances

A

Which of the following would ordinarily be treated as revenue expenditure rather than a capital expenditure? a. Cost of servicing and overhaul to restore or maintain the originally assessed standard of performance b. The replacement of a major component of building c. An addition to an existing building d. Cost of improvement that is expected to provide discernible future benefit.

D

Which of the following statements is incorrect with respect to depreciation? a. The depreciation method shall reflect the pattern in which the asset's economic benefits are consumed by the entity b. Depreciation of an asset begins when it is available for use or when it is in the location and condition necessary for the intended use. c. Depreciation ceases at the date the asset is classified as held for sale d. Depreciation is not recognized if the fair value of an asset exceeds carrying amount.

B

Which of the following statements is the assumption on which straight line depreciation is based? a. The operating efficiency of the asset decreases in late years b. Service value declines as a function of time rather than use c. Service value declines as a function of obsolescence rather than time d. Physical wear and tear are more important that economic obsolescence

A

Which of the following statements is true? a. An asset is depreciated even if the fair value exceeds carrying amount b. Land and building are not accounted for separately c. A noncurrent asset acquired as the result of an exchange is not recognized d. A gain on disposal is classified as revenue