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QB1
CHAPTER 7 A business has opening inventory of £7,200 and closing
inventory of £8,100. Purchases for the year were £76,500,
QUESTION BANK delivery inwards was £50 and delivery outwards was £180.
What is the correct amount for cost of sales?
A. £75,550
B. £75,650
C. £75,830
D. £77,450

QB2 QB3
Platoon plc is preparing its financial statements for the year ended 30 Muse plc began trading on 1 January 20X8 and had zero inventories at
April 20X1, having extracted an initial trial balance.
that date. During 20X8 it made purchases of £455,000, incurred
It had no opening inventory, its purchases in the period were
delivery inwards of £24,000, and delivery outwards of £29,000.
£686,880 and closing inventories were valued as £18,647 on 30 April 20X1.
Which two of the following journal entries are required to record cost of Closing inventories at 31 December 20X8 were £52,000.
sales and closing inventories at 30 April 20X1? What is the correct amount for cost of sales for the year ended 31
A. Dr Cost of sales £686,880; Cr Inventories £686,880 December 20X8?
B. Dr Purchases £686,880; Cr Cost of sales £686,880 A. £ 456,000
C. Dr Cost of sales £686,880; Cr Purchases £686,880
B. £ 427,000
D. Dr Inventories £18,647; Cr Cost of sales £18,647
C. £ 432,000
E. Dr Cost of sales £18,647; Cr Inventories £18,647
D. £ 531,000
F. Dr Inventories £18,647; Cr Purchases £18,647

QB4 QB5
Boomerang Co had 200 units in inventory at 30 November 20X1 valued at Direct Production Expected Expected
£800. During December it made the following purchases and sales. costs of overheads selling and selling
materials incurred distribution price
2/12 Purchased 1,000 @ £5.00 each and labour overheads
5/12 Sold 700 @ £7.50 each Inventory category 1 2,470 2,100 480 5,800
12/12 Purchased 800 @ £6.20 each Inventory category 2 9,360 2,730 150 12,040
15/12 Purchased 300 @ £6.60 each Inventory category 3 1,450 850 190 2,560

21/12 Sold 400 @ £8.00 each 13,280 5,680 820 20,400

28/12 Sold 500 @ £8.20 each
Which of the following is the closing inventory amount using FIFO?
A. £4,460
B. £4,340
C. £4,620
D. £3,500
4,570+11,890+2,300 = 18,760

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QB6 QB7
Indicate whether the following statements are true or false.
At its year end Crocodile plc has 6,000 items of product A, and 2,000 of product B,
In a period of rising prices, applying the FIFO method to determine the
costing £10 and £5 respectively. The following information is available:
cost of inventories will give a lower gross profit figure than the AVCO
Product A – 500 are defective and can only be sold at £8 each.
method.
Product B – 100 are to be sold for £4.50 each with selling expenses of £1.50 each.
What figure should be shown in Crocodile plc's statement of financial position for A True
inventory? B False
A. £57,000 Closing inventory is a debit in the statement of profit or loss. FIFO
B. £68,950 C True
C. £68,800 D False
AVCO
D. £70,000

QB8 Answer using AVCO

Mickey Ltd has calculated the cost of inventory using AVCO. At 1 June Date Received Issued Unit value Total value
20X8 there were 60 units in inventory at a cost of £12 each. On 8 June, Units Units Unit £ £
40 units were purchased for £15 each, and a further 50 units were
Opening inventory 60 12 720
purchased for £18 each on 14 June. On 21 June, 75 units were sold for
£20.00 each. 8 June 40 15 600
What is the cost of closing inventory at 30 June 20X8?
100 13.2 * 1.320
A. £ 1,110
B. £ 1,010 14 June 50 18 900
C. £ 900 150 14.8** 2,220
D. £ 1,125
21 June (75) 14.8 (1,110)

Closing inventory value 75 14.8 1,110

QB9
Morgan plc's direct production cost of each unit of inventory is £46.
QB10
Production overheads are £15 per unit. Currently the goods can only be Indicate whether the following statements are true or false.
sold if they are modified at a cost of £17 per unit. The selling price of
A van for sale by a dealer is shown as a non-current asset
each modified unit is £80 and selling costs are estimated at 10% of selling
price. in its statement of financial position:
At what amount should each unmodified unit of inventory be included A. True
in the statement of financial position? B. False
A. £48
Import duties are included in the cost of inventory.
B. £55
C. £64 C. True
D. £61 D. False

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QB11 QB12
Which two of the following may be included when arriving at the Which of the following statements about inventory for the purposes of the
cost of finished goods inventory for inclusion in the financial statement of financial position is correct?
statements of a manufacturing company? A. AVCO and LIFO are both acceptable methods, under IAS 2,
A. Delivery inwards Inventories, of arriving at the cost of inventories.
B. Delivery outwards B The cost of inventories of finished goods may include labour
and materials cost only, without including overheads.
C. Depreciation of delivery vehicles
C. Inventories should be included at the lowest of cost, net
D. Finished goods storage costs
realisable value and replacement cost.
E. Production line wages
D. It may be acceptable for the cost of inventories to be based on
selling price less estimated profit margin.

QB13 QB14
A company's closing inventory at 31 January 20X3 amounted to £284,700.
Sahara plc sells 3 products:
The following items were included, at cost, in the total:
Basic (per unit) Super (per unit) Luxury (per unit)
1. 400 coats, which had cost £80 each and normally sold for £150 each. Owing
Original cost 6 9 18
to a defect in manufacture, they were all sold after 31 January 20X3 at 50% of
Estimated selling price 9 12 15
their normal price. Selling expenses amounted to 5% of the proceeds.
Selling & distribution 1 4 5
2. 800 skirts, which had cost £20 each. These too were found to be defective.
cost to be incurred
Remedial work in February 20X3 cost £5 per skirt, and selling expenses were £1
per skirt. They were sold for £28 each. Units of inventory 200 250 150
What should be the inventory value after considering the above items?
A £281,200 What is the value of inventory at the year end?
B £282,800 A. 3,600
C £329,200 B. 4,700
D £284,700 C. 5,100
D. 6,150

QB15 QB16
A company uses the FIFO method to arrive at its inventory cost. At 1 May 20X2 the An inventory record card shows the following details.
company had 700 engines in inventory, valued at £190 each. During the year ended 30
February 1 50 units in inventory at a cost of £40 per unit
April 20X3 the following transactions took place:
7 100 units purchased at a cost of £45 per unit
20X2
1 July Purchased 500 engines at £220 each 14 80 units sold
1 November Sold 400 engines for £160,000 21 50 units purchased at a cost of £50 per unit
20X3 28 60 units sold
1 February Purchased 300 engines at £230 each What is the cost of inventory at 28 February using the FIFO method?
15 April Sold 250 engines for £125,000
A £2,450
What is the cost of the company's closing B £2,500
inventory of engines at 30 April 20X3?
A £188,500 C £2,700
B £195,500 D £2,950
C £161,500
D £167,500

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QB17 QB18
For the year ended 31 October 20X3 a company did a physical count of inventory on
4 November 20X3, leading to an inventory cost at this date of £ 483,700. In preparing its financial statements for the current year, a company's
Between 1 November 20X3 and 4 November 20X3 the following transactions took place: closing inventory was understated by £300,000.
1. Goods costing £38,400 were received from suppliers. What will be the effect of this error if it remains uncorrected?
2. Goods that had cost £14,800 were sold for £20,000.
A. The current year's profit will be overstated and next year's profit will
3. A customer returned, in good condition, some goods which had been sold to him in
be understated.
October for £600 and which had cost £400.
4. The company returned goods that had cost £1,800 in October to the supplier, and B. The current year's profit will be understated but there will be no effect
received a credit note for them. on next year’s profit.
What figure should be shown in the company's financial statements at 31 October 20X3 C. The current year's profit will be understated and next year's profit will
for closing inventory, based on this information? be overstated.
A. £ 458,700
D. The current year's profit will be overstated but there will be no effect
B. £ 505,900
on next year’s profit.
C. £ 508,700
D. £ 461,500

QB19 QB20
At 30 September 20X3 the closing inventory of a company amounted to £386,400. The cost of inventory in the financial statements of Quebec Ltd for the year
The following items were included in this total at cost: ended 31 December 20X4 of £836,200 was based on an inventory count on 4
1. 1,000 items which had cost £18 each. These items were all sold in October 20X3 January 20X5. Between 31 December 20X4 and 4 January 20X5, the following
for £15 each, with selling expenses of £800. transactions took place:
2. Five items which had been in inventory for many years and which had been £
purchased for £100 each, sold in October 20X3 for £1,000 each, net of selling Purchases of goods 8,600
expenses. Sales of goods (profit margin 30% on sales) 14,000
What figure should appear in the company's statement of financial position at Goods returned by Quebec Ltd to a supplier 700
30 September 20X3 for inventory? What adjusted figure should be included in the financial statements for
A £382,600 inventories at 31 December 20X4?
B £390,200 A £838,100
C £368,400 B £842,300
D £400,600 C £818,500
D £834,300

QB21 QB22
The closing inventory of Epsilon amounted to £284,000 at cost at the year end of Lamp makes the following purchases in the year ending 31 December 20X9.
Units £/unit Total (£)
30 September 20X1. This total includes the following two inventory lines.
1 21.01.X9 100 12.00 1,200
1) 500 items which had cost £15 each and which were included at £7,500.
2 30.04.X9 300 12.50 3,750
These items were found to have been defective at the date of the statement of
3 31.07.X9 40 12.80 512
financial position. Remedial work after that date cost £1,800 and they were then 4 01.09.X9 60 13.00 780
sold shortly afterwards for £20 each. Selling expenses were £400. 5 11.11.X9 80 13.50 1,080
2) 100 items which had cost £10 each. After the date of the statement of At the year end 200 units are in inventory but 8 are damaged and are only worth £10 per
financial position they were sold for £8 each, with selling expenses of £150. unit. These are identified as having been part of the 11.11.X9 delivery. Lamp operates a
What amount should be shown in Epsilon's statement of financial position for FIFO system for arriving at the cost of inventory.
inventory? What is the correct figure for inventories at 31 December 20X9?:
A £2,450
A. £283,650
B £2,525
B. £284,350
C £2,594
C. £284,650
D £2,700
D. £291,725

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QB23 QB24
Bouncy Balls plc has 40 units of its special spongy balls in Inventory as The closing inventory of Stacks plc amounted to £58,200 excluding the following
at 30 November20X7. The product costs £5 per unit to manufacture and two inventory lines:
1) 200 items which had cost £15 each. These items were found to be defective at the
can be sold for £15 per unit. Half of the units in inventory at the year
year-end date. Rectification work after that date amounted to £1,200 for the batch,
end have been damaged and will require rectification work costing £10 after which they were sold for £17.50 each, with selling expenses totalling £300 for
per unit before they can be sold. Selling costs are £1 per unit. the batch.
What is the value of inventory at 30 November 20X7? 2) 400 items which had cost £2 each. All were sold after the year-end date for £1.50
A. £ 160 each, with selling expenses of £200 for the batch.
What amount for inventory should be shown in the SOFP of Stacks plc?
B. £ 180
A. £62,000
C. £ 200
B. £61,600
D. £ 600 C. £60,600
D. £61,000

QB25 QB26
Fenton plc is a manufacturer of PCs. The company makes two different models,
the M1 and M2, and has 100 of each in inventory at the year end.
When calculating the cost of inventory, which of the following shows the
Costs and related data for a unit of each model are as follows:
M1 M2 correct method of arriving at cost?
Costs to date 230 350 Include inward delivery costs Include production overheads
Selling price 400 500
A. Yes No
Modification costs to enable sale 110 –
Delivery outwards 65 75 B. No Yes
What figure for inventory should be shown in the SOFP at the year end? C. Yes Yes
A. £57,500
D. No No
B. £58,000
C. £65,000
D. £65,500

QB27
QB28
A trader who sets her selling prices by adding 50% to cost actually achieved a
mark-up of 45%. Which of the following factors could account for the
The gross profit margin is 20% where:
shortfall?
A. Sales were lower than expected. A. cost of sales is £ 100,000 and sales are £ 120,000
B. The value of the opening inventories had been overstated. B. cost of sales is £ 100,000 and sales are £ 125,000
C. The closing inventories of the business were higher than the opening C. cost of sales is £ 80,000 and gross profit is £ 16,000
inventories. D. cost of sales is £ 80,000 and sales are £ 96,000
D. Goods taken from inventories by the proprietor were recorded by debiting
drawings and crediting purchases with the cost of the goods.

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QB29 QB30
Which of the following factors could cause a company's gross An extract from a business's statement of profit or loss is as follows:
profit margin to fall below the expected level? Revenue 115,200
A .Overstatement of closing inventories Opening inventory 21,000
Purchases 80,000
B. The incorrect inclusion in purchases of invoices relating to
Closing inventory (5,000)
goods supplied in the following period (96,000)
C. The inclusion in sales of the proceeds of sale of non-current 19,200
assets What mark-up has the business applied?
A 14.8%
D. Increased cost of delivery borne by the company on goods sent
B 16.7%
to customers C 20.0%
D 83.3%

QB31 Answer using AVCO QB31

Franz plc is a manufacturer. Its 12-month reporting period ends on 31 July
and it adopts the average cost (AVCO) method of inventory usage and Date Received Issued Unit value Total value
valuation. At 1 August 20X4 it held inventory of 2,400 units of the material Units Units Unit £ £
Zobdo, valued at £10 each. In the year to 31 July 20X5 there were the Opening inventory 2,400 10 24,000
following inventory movements of Zobdo:
14 November 20X4 Sales 900 units 14 Nov (900) 10 (9,000)
28 January 20X5 Purchase 1,200 units for £20,100
1,500 10 15,000
7 May 20X5 Sales 1,800 units
What was the cost of Franz plc's closing inventory of Zobdo at 31 July 28 Jan 1,200 16,75 20,100
20X5? 2,700 13 35,100
A. £11,700
B. £9,000 7 May (1,800) 13 (23,400)
C. £15,075
Closing inventory value 900 13 11,700
D. £35,100

Answer using AVCO QB31 QB32

Date Received Issued Unit value Total value
For many years Wrigley plc has experienced rising prices for raw
Units Units Unit £ £ material X, and has kept constant inventory levels. It has always used
the AVCO method to arrive at the cost of inventory.
Opening inventory 2,400 10 24,000
What would the result be if Wrigley plc had always used the FIFO
14 Nov (900) 10 (9,000) method in each successive year's financial statements?
A. Lower cost of sales and higher closing inventory
1,500 10 15,000
B. Lower cost of sales and lower closing inventory
28 Jan 1,200 16,75 20,100 C. Higher cost of sales and lower closing inventory
2,700 13 35,100 D. Higher cost of sales and higher closing inventory FIFO

7 May (1,800) 13 (23,400)

AVCO
Closing inventory value 900 13 11,700

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QB33 QB34
During the year ended 31 March 20X4 Boogie plc suffered a major fire at
its factory, in which inventory that had cost £36,000 was destroyed. An Percy plc started trading on 1 April 20X4. The cost of inventory
insurance payment of 80% of the cost has been agreed but not received at shown in Percy plc’s statement of financial position at 31 March 20X5,
the year end. using the AVCO basis, was £6,420. Had the FIFO basis been used, the
Which of the following correctly completes the journal entry too take cost would have been £8,080.
account of these What is the effect of adopting the FIFO basis on Percy plc's
matters? financial statements for the year ended 31 March 20X5?
DR. trade and other receivables with £28,800 and: A. increase profits and decrease current assets by £1,660
A. DR. Administrative expenses £36,000, CR. Purchases £28,800, B. increase current assets and decrease losses by £1,660
CR. Revenue £36,000 C. increase capital and decrease current assets by £1,660
B. DR. Administrative expenses £7,200, CR. Purchases £36,000 D. Increase current assets and increase losses by £1,660
C. DR. Administrative expenses £36,000, CR. Purchases £36,000,
CR. Other income £28,800
D. DR. Administrative EX £7,200, CR. Inventory £36,000

QB35
Kane Ltd has completed its inventory count for the period ended 30 June
20X8. The inventory count concluded that there were inventories costing
£32,340 of which £1,280 were found to be damaged and so had a net
realizable value of nil.
THANK YOU
What is the journal entry to record closing inventories at 30 June 20X8?
A. Dr Cost of sales £32,340, Cr Inventories £32,340
B. Dr Inventories £32,340, Cr Cost of sales £32,340
C. Dr Cost of sales £31,060, Cr Inventories £31,060
D. Dr Inventories £31,060, Cr Cost of sales £31,060