Conceptual Testing IAS 2 1

Kashif Adeel/www.financedoctors.net
IAS 2 MULTIPLE CHOICE QUESTIONS
1. Inventories, are defined as:
1. Only tangible products being held for sale, being prepared for sale or materials to
be used in the production process
2. Tangible goods lying in the store, which are not being sold
3. Assets being held for sale, being prepared for sale or materials to be used in the
production process or provision of services
2. Net realisable value is defined as:
1. The estimated selling price, in the ordinary course of business, plus costs of
completion, and less selling costs
2. The estimated selling price, in the ordinary course of business, less costs of
completion, and less selling costs
3. Fair value is defined as the value for which:
1. An asset could be sold, or a liability extinguished, between willing independent
traders
2. An asset could be sold, or a liability extinguished, between coerced independent
traders
4. The difference between Net Realisable Value and Fair Value is that:
1. Net realisable value relies on the specific business of the firm that is the subject of
the financial statements. Fair value relates to the market, rather than to individual
contracts
2. Fair value relies on the specific business of the firm that is the subject of the
financial statements. Net Realisable value relates to the market, rather than to
individual contracts
5. The cost of inventories:
1. Comprises all costs of production, costs of conversion, and other costs incurred in
bringing the inventories to their present location and condition
2. Comprises only the costs of production, and no costs of conversion or other costs
incurred in bringing the inventories to their present location and condition
6. The purchase price, transport and handling costs. Taxes and import duties are all
examples of:
1. Costs of conversion
2. Costs of purchase
3. 2 and 3
4. Neither
7. Variable Production overheads are:
1. Those direct and indirect costs that vary directly with different levels of production,
such as direct and indirect labour
2. Variable production overheads are those indirect costs that vary directly with
different levels of production, such as indirect labour and indirect materials
8. How would unallocated overheads be recognised?
1. Unallocated overheads are recognised as an expense in the income statement, in
the period that they are incurred
2. Unallocated overheads are recognised as income in the income statement, in the
period that they are incurred
Conceptual Testing IAS 2 2
Kashif Adeel/www.financedoctors.net
9. As opposed to fixed production overheads, variable production overheads are:
1. Allocated to all the units of production, as one whole
2. Allocated to each unit of production, based on the actual usage of facilities
10. Other costs are to be:
1. Ignored from the cost of inventory despite being incurred in bringing the
inventories to their present location and condition
2. May be included in the cost of inventory if they are incurred in bringing the
inventories to their present location and condition
11. Examples of costs expensed in the period they are incurred are:
1. Selling costs, storage costs for finished goods and general administration costs
2. Costs of purchase and conversion
3. Abnormal amounts of wasted materials, labour and other production costs
4. 2 and 3
5. 1 and 3
6. 1, 2 and 3
12. Standard costs or the retail method is used as a tool of measurement of cost. The
retail method is:
1. Sales price less profit margin
2. Sales price plus profit mark up
13. Reasons for inventories being sold for less than their cost could be:
1. A general fall in market price, damage to goods and obsolescence
2. Additional costs needed to complete manufacture
3. Falling costs of production
4. 2 and 3 only
5. 3 only
6. 1 and 2 only
14. If the price at which they will be sold is less than the current cost, allowing for
completion costs, the value of the inventory will be reduced to its:
1. Fair value
2. Net realisable value
15. When inventories are sold, the carrying amounts of the inventories are recognised as:
1. An expense in the period that the revenue is recognised
2. An income in the period that the revenue is recognized
16. Any inventory transferred to other asset accounts, such as parts of self-constructed
property, are recognised and expensed:
1. Immediately to be written off
2. Over the useful life of that asset
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