Review Higher freight in charges would cause a decrease in the cost ratio in the retail inventory method.
Mẹo Hướng dẫn Higher freight in charges would cause a decrease in the cost ratio in the retail inventory method. Mới Nhất
Cao Thị Phương Thảo đang tìm kiếm từ khóa Higher freight in charges would cause a decrease in the cost ratio in the retail inventory method. được Cập Nhật vào lúc : 2022-09-20 15:50:05 . Với phương châm chia sẻ Bí kíp về trong nội dung bài viết một cách Chi Tiết Mới Nhất. Nếu sau khi đọc nội dung bài viết vẫn ko hiểu thì hoàn toàn có thể lại phản hồi ở cuối bài để Tác giả lý giải và hướng dẫn lại nha.
Nội dung chính - FINANCIAL ACCOUNTINGTHEORY & PRACTICEINVENTORIES – COST ESTIMATION & BIOLOGICAL ASSETSFINANCIAL ACCOUNTINGInventory
– Cost EstimationBiological AssetsFINANCIAL ACCOUNTINGFINANCIAL ACCOUNTINGBiological AssetsInventory – Cost EstimationFINANCIAL ACCOUNTINGFINANCIAL ACCOUNTINGBiological AssetsBiological AssetsFINANCIAL ACCOUNTINGWhat is the effect of the freightWhat is the retail method of inventory costing?Which inventory method approximates inventory valuation the lower of cost or market?
INVENTORY ESTIMATION
1.Inventory estimates will be required for the following, except
a.As proof of reasonable accuracy of the physical inventory
b.When inventory is destroyed by typhoon or lahar flow
c.When interim financial statements are prepared
d.In the determination of the ending inventory to be shown on the balance
sheet year end
2.Noel Corp. has annual sales totaling P650,000 and an average gross profit of
20% of cost. What is the peso amount of the gross profit?
a.130,000
b.162,500
c.108,333
d.97,500
SOLUTION:
P650,000 - (P650,000 ÷ 1.20) = P108,333
3.The following information is available for October for Joseph Company
Beginning inventoryP 50,000
Net purchases150,000
Net sales300,000
Percentage markup on cost66.67%
A fire destroyed Joseph’s October 31 inventory, leaving undamaged inventory
with a cost of P3,000. Using the gross profit method, the estimated ending
inventory destroyed by fire is
a. P17,000
b.P77,000
c.P80,000
d.P100,000
SOLUTION:
(P50,000 + P150,000) – (P300,000 ÷ 5/3) – P3,000 = P17,000
4.April Company uses the retail inventory method to value its merchandise
inventory. The following information is available for the current year:
CostRetail
Beginning inventoryP 30,000P 50,000
Purchases145,000200,000
Freight-in2,500-
Net markups-8,500
FINANCIAL ACCOUNTING
THEORY & PRACTICE
INVENTORIES – COST ESTIMATION & BIOLOGICAL ASSETS
QUIZZER
FINANCIAL ACCOUNTING
Essay Questions: Inventory – Cost Estimation Page 4
INVENTORY VALUATIONEssay Questions
Inventory Estimation Methods
What are the reasons for making an estimate of inventory?
Determination of inventory loss due to fire and other catastrophe or theft of merchandise.
Proof of the reasonable accuracy of a physical count. This is popularly known as the "gross profit test."
Preparation of interim statements or statements of less than one year. Interim statements are usually for a quarter.
However, year-end statements require physical count, not a mere estimate of inventory value.
Gross profit method 2. Explain the gross profit method of estimating the cost of ending inventory.
Under the gross profit method, the ending inventory is computed as "goods available for sale minus cost of sales".
The cost of sales is determined through the use of the gross profit rate and this is the reason the gross profit method is called as such.
This method is based on the major assumption that the rate of gross profit remains approximately the same from period to period and therefore the ratio of cost of goods sold to net sales is relatively constant from period to period.
Retail inventory method 3. Explain the retail method of estimating the cost of ending inventory.
The retail inventory method came to its name because the selling price or retail price is tagged to each item and therefore the ending inventory is stated selling price.
The ending inventory is computed as follows:
Goods available for sale selling price minus net sales equals ending inventory selling
Inventory – Cost Estimation
Essay Questions: Inventory – Cost Estimation Page 5
price which is multiplied by the cost ratio to get the inventory cost.
The cost ratio under the retail method is computed by dividing the goods available for sale cost by the goods available for sale selling price.
What are the four applications of the retail inventory method?
Conservative approach - The cost ratio is determined by including markups and excluding markdowns in computing the goods available for sale retail. This approach is also known as the conventional or lower of average cost or market approach.
Average cost approach - The markups and markdowns are both included in the computation of the cost ratio.
FIFO approach - A cost ratio is computed for the current year. Thus, only the current purchases are considered together with markups and markdowns. The beginning inventory is excluded in the computation.
LIFO approach - The cost ratio is computed following the same procedure under FIFO approach. Thus, the FIFO and LIFO would have the same cost ratio for the current year.
Which approach is followed in measuring inventory under the retail inventory method?
PAS 2, paragraph 22, provides that the percentage used under the retail method shall take into consideration inventory that has been marked down to below its original selling price.
An average percentage for each retail department is often used.
This means that the average cost approach shall be applied in conjunction with the retail inventory method.
Of course, PAS 2 requires either the FIFO or average method as a cost formula.
Define the following:
Original retail
Initial markup
Additional markup
Markup cancelation
Biological Assets
Essay Questions: Biological Assets Page 7
Harvest is the detachment of produce from a biological asset or the cessation of a biological asset's life processes.
Give examples of biological assets, agricultural produce and products that are the result of processing after harvest.The following table provides examples of biological assets, agricultural produce and products that are the result of processing after harvest.
Biological asset Agricultural Product produce after harvest
Sheep Wool Yarn, carpetTrees in plantation forest Felled trees Logs, lumberPlant Harvested cane SugarDairy cattle Milk CheesePigs Carcass Sausage, cured hamBushes Leaf Tea, cured tobaccoVines Grapes WineFruit trees Picked fruit Processed fruitAgain, the measurement of biological assets and agricultural produce is covered by PAS 41 and the measurement of products after harvest is covered by PAS 2 on inventories.
Define agricultural activity and biological transformation.Agricultural activity or simply "agriculture" is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.
Biological transformation comprises the processes of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset.
Give examples of agricultural activity.Agricultural activity covers a diverse range of activities such as the following:
Raising livestockAnnual or perennial croppingCultivating orchards and plantationsFloricultureFINANCIAL ACCOUNTING
Essay Questions: Biological Assets Page 8
Aquaculture, including fish farming
What are the common features of agricultural activity?
The common features of agricultural activity are as follows: a. Capability to change b. Management of change c. Measurement of change
Capability to change Living animals and plants are capable of biological transformation.
Management of change The agricultural activity must be "managed" to facilitate biological transformation by enhancing or least stabilizing conditions necessary for the process to take place.
Such management distinguishes agricultural activity from other activities.
For example, harvesting from "unmanaged" sources, such as ocean fishing and deforestation, is not agricultural activity.
Measurement of change The change in quality or quantity brought about by biological transformation or harvest is measured and monitored as a routine management function.
Give examples of biological transformation. Biological transformation results from the following types of outcome:
Asset changes through: a. Growth - an increase in quantity or improvement in quality of an animal or plant. b. Degeneration - a decrease in quantity or deterioration in quality of an animal or plant. c. Procreation - creation of additional living animal or plant.Production of agricultural produce such as latex, tea leaf, wool and milk.What are the conditions for the recognition of a biological asset or agricultural produce? An entity shall recognize a biological asset or an agricultural produce when:
The entity controls the asset as a result of past sự kiện.It is probable that future economic benefits associated with the asset will flow to the entity.FINANCIAL ACCOUNTING
Essay Questions: Biological Assets Page 10
The prevailing view is that the fair value of agricultural produce the point of harvest can always be measured reliably.
The fair value measurement of agricultural produce stops the time of harvest. After that date, PAS 2 on inventory shall apply.
In other words, the harvested product becomes an inventory and shall be measured subsequently the lower of cost and net realizable value.
The harvested product is recorded by debiting inventory and crediting gain from change in fair value.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants the measurement date. PFRS 13, paragraph 72, enumerates the fair value hierarchy or best evidence of fair value as follows:
Level 1 inputs are the quoted prices in an active market for identical assets. An active market is a market in which transactions for the asset or liability take place with sufficient regularity and volume to provide pricing information on an ongoing basis. A principal market is the market with the greatest volume and level of activity for the asset or liability.Level 2 inputs are observable inputs either directly or indirectly. Level 2 inputs include quoted prices for similar assets in an active market and quoted prices for identical or similar assets in an inactive market.Level 3 inputs are unobservable inputs for the asset usually developed by the entity using the best available information from the entity's own data. An example is the financial forecast of expected cash inflows from the asset.Explain the treatment of gain or loss from the fair value measurement of biological asset and agricultural produce. A gain or loss arising on initial recognition of a biological asset fair value less cost of disposal and any subsequent changes in fair value cost of disposal shall be included in profit or loss. A loss may arise on initial recognition of a biological asset because cost of disposal is deducted in determining fair value loss cost of disposal of a biological asset.
A gain may arise on initial recognition of a biological asset, for example, when a calf is born.
A gain or loss arising from initial recognition of agricultural produce fair value less cost of disposal shall also be included in profit or loss.
Biological Assets
Essay Questions: Biological Assets Page 11
A gain or loss may arise on initial recognition of agricultural produce as a result of harvesting.
An entity shall disclose the aggregate gain or loss arising on the initial recognition of biological asset and agricultural produce and from the change in fair value less cost of disposal of biological asset.
Is agricultural land a biological asset? Agricultural land is not a biological asset.The principles espoused in PAS 41 for biological assets and agricultural produce do not apply to agricultural land.
The requirements of PAS 16 which are applicable to property, plant and equipment apply equally to agricultural land for purposes of measurement.
Explain the fair value measurement of biological assets physically attached to land.Biological assets are often physically attached to land, for example, trees in a plantation forest.
There may be no separate market for biological assets that are attached to the land but an active market may exist for the combined assets, that is, for the biological assets and land as a package.
An entity may use information regarding the combined assets to determine the fair value of the biological assets.
For example, the fair value of the land may be deducted from the fair value of the combined assets to arrive the fair value of the trees in the plantation forest.
Explain the treatment of a government grant related to:
Biological asset measured fair value less cost of disposal.
Biological asset measured cost less any accumulated depreciation and any accumulated impairment losses.
An unconditional government grant related to a biological asset that has been measured fair value less cost of disposal shall be recognized in profit or loss when the grant
Inventory – Cost Estimation
MCQ – Theories: Inventory – Cost Estimation Page 13
MCQ – Theory: Inventories – Cost Estimation Gross profit method
The gross profit method assumes that A. The amount of gross profit is the same as in prior years. B. Inventory values have not increased from previous years. C. Sales and cost of goods sold have not changed from previous years. FA © 2014 D. The relationship between selling price and cost of goods sold is similar to prior years.
Which of the following is not a basic assumption of the gross profit method? A. Goods not sold must be hand. B. The beginning inventory plus purchases equal total goods to be accounted for. C. The amount of purchases and the amount of sales remain relatively unchanged from the comparable previous period. D. The sales reduced to cost basis when deducted from the sum of beginning inventory and purchases would result to inventory on hand. FA © 2014
How is the gross profit method used in relation to inventory valuation? A. To provide a FIFO inventory value B. To estimate the cost of goods sold C. To verify the accuracy of the physical inventory D. To verify the accuracy of the perpetual inventory record FA © 2014
The gross margin method of estimating ending inventory may be used for all of the following, except A. Internal as well as external interim reports B. Internal as well as external year-end reports C. Estimate of inventory destroyed by fire or other casualty D. Rough test of the validity of an inventory cost determined under either periodic or perpetual system. FA © 2014
Which would not require an estimate of inventory? A. Inventory destroyed by typhoon B. Interim financial statements are prepared C. Proof of the reasonable accuracy of the physical count D. Determination of the ending inventory to be reported in the statement of financial position year-end FA © 2014
FINANCIAL ACCOUNTING
MCQ – Theories: Inventory – Cost Estimation Page 14
The gross profit method of estimating inventory would not be useful when A. There is a significant change in the mix of products being sold. B. The relationship between gross profit and sales remains stable over time. C. A periodic system is in use and inventories are required for interim statements. D. Inventories have been destroyed or lost by fire, theft or other casualty, and the specific data required for inventory valuation are not available. FA © 2014
The gross profit method of inventory valuation is not valid when A. All ending inventory is destroyed by fire before it can be counted. B. The gross margin percentage changes significantly during the year. C. There is substantial increase in the cost of inventory during the year. D. There is substantial increase in the quantity of inventory during the year. FA © 2014
The gross profit method of inventory valuation is invalid when A. A portion of inventory is destroyed. B. There is a substantial increase in inventory during the year. C. There is no beginning inventory because it is the first year of operation. D. The gross profit percentage applicable to the goods in ending inventory is different from the percentage applicable to goods sold during the period. FA © 2014
If the gross profit rate is based on sales, the cost of goods sold is computed as A. Gross sales divided by sales ratio C. Net sales divided by sales ratio B. Gross sales times cost ratio D. Net sales times cost ratio TOA © 2013
If the gross profit rate is based on cost, the cost of goods sold is computed as A. Gross sales divided by sales ratio C. Net sales divided by sales ratio B. Gross sales times cost ratio D. Net sales times cost ratio FA © 2014
Which statement is not valid about the gross profit method? A. It may be used by auditors. B. It is an acceptable accounting procedure. C. It may be used to estimate inventory for annual statements. D. It may be used to estimate inventory for interim statements. FA © 2014
Retail inventory method 12. The retail method is based on the assumption that A. Ratio of cost to retail changes a constant rate. B. Ratio of gross margin to sales is approximately the same each period. C. Proportions of markup and markdown to selling price are the same.
FINANCIAL ACCOUNTING
MCQ – Theories: Inventory – Cost Estimation Page 16
Conventional retail inventory method 19. An inventory method which is designed to approximate inventory valuation the lower of cost and net realizable value is A. Average retail method C. FIFO retail B. Conventional retail method D. LIFO retail FA © 2014
The conventional retail method produces an ending inventory that approximates A. Lower of cost or net realizable value B. Lower of LIFO cost or net realizable value C. Lower of FIFO cost or net realizable value D. Lower of average cost or net realizable value FA © 2014
To produce an inventory valuation which approximates the lower of cost or net realizable value using the retail inventory method, the computation of the ratio of cost to retail should FA © 2014 A. Include markups and markdowns C. Include markups but not markdowns B. Include markdowns but not markups D. Ignore both markups and markdowns
If the conservative retail inventory method is used, which of the following calculations would include or exclude net markdowns? FA © 2014 A. B. C. D. Cost ratio Include Include Exclude Exclude Ending inventory retail Include Exclude Include Exclude
When the conventional retail inventory method is used, markdowns are commonly ignored in the computation of cost to retail ratio because A. There may be no markdowns in a given year. B. This tends to give a better approximation of the lower of cost or net realizable value. C. Markups are also ignored. D. This tends to result in the showing of a normal profit margin in a period when no markdown goods have been sold. FA © 2014
Sensitivity analysis 24. Which of the following would cause a decrease in the cost ratio used in the retail inventory method? A. Higher freight in charges C. Lower net markups B. Higher retail prices D. More employee discounts FA © 2014
Biological Assets
MCQ – Theories: Biological Assets Page 17
What is the effect of freight in on the cost-retail ratio when using the conservative retail method? A. Increases the cost-retail ratio B. Decreases the cost-retail ratio C. No effect on the cost-retail ratio D. Depends on the amount of the net markup FA © 2014
What is the effect of net markup on the cost-retail ratio when using the conservative retail method? A. Increases the cost-retail ratio B. Decreases the cost-retail ratio C. No effect on the cost-retail ratio D. Depends on the amount of the net markdown FA © 2014
Comprehensive 27. With regard to the retail inventory method, which of the following is the most accurate statement? A. It is not adaptable to FIFO costing. B. Generally, accountants ignore net markups and net markdowns in computing the cost price percentage. C. Generally, accountants exclude net markups and include net markdowns in computing cost price percentage. D. This method results in a lower ending inventory cost if net markups are included but net markdowns are excluded in computing the cost price percentage. FA © 2014
MCQ – Theory: Biological Assets Scope 28. Where there is a long aging or maturation process after harvest, the accounting for such products shall be dealt with by A. PAS 41, Agriculture C. PAS 40, Investment property FA © 2014 B. PAS 2, Inventories D. PAS 16, Property, plant and equipment
Which of the following is not dealt with by PAS 41? A. The accounting for biological assets. B. The processing of agricultural produce after harvesting. FA © 2014 C. The accounting treatment of government grant received in respect of biological assets. D. The initial measurement of agricultural produce harvested from the entity's biological assets.Biological Assets
MCQ – Theories: Biological Assets Page 19
Biological assets A. Must be measured cost. B. Are found only in Biotech entities. C. Do not generally have future economic benefits. D. Are living animals or living plants and must disclosed as a separate line item in the statement of financial position. FA © 2014
All of the following would be classified as biological asset, except A. Chicken C Egg B. Dairy cattle D. Tree FA © 2014
Biological transformation results from asset changes through all of the following, except A. Degeneration C. Procreation FA © 2014 B. Growth D. Production of agricultural produce
Which of the following criteria must not be satisfied before a biological asset can be recognized in the financial statements? A. An active market for the asset exists. B. The entity controls the asset as a result of past sự kiện. C. The fair value or cost of the asset can be measured reliably. FA © 2014 D. It is probable that future economic benefits relating to the asset will flow to the entity.
Generally speaking, biological assets relating to agricultural activity shall be measured using A. Historical cost B. Net realizable value C. A fair value approach D. Historical cost less depreciation less impairment FA © 2014
Biological assets are measured A. Cost C. Lower of cost and net realizable value B. Fair value less cost of disposal D. Net realizable value FA © 2014
Which of the following is unlikely to be used in fair value measurement? A. External independent valuation B. Quoted price of a similar asset in an active market C. Quoted price of an identical asset in an active market D. Quoted price of an identical asset in an inactive market FA © 2014
FINANCIAL ACCOUNTING
MCQ – Theories: Biological Assets Page 20
When the fair value of the biological asset cannot be determined reliably, the biological asset shall be measured A. Cost B. Net realizable value C. Cost less accumulated depreciation D. Cost less accumulated depreciation and accumulated impairment losses FA © 2014Income from biological asset 45. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income shall be accounted for in which of the following? A. No income shall reported annually until first harvest and sale in 30 years. B. The eventual sale proceeds shall be estimated and matched to the profit and loss account over the 30-year period. C. Income shall be measured annually and reported using a fair value approach that recognizes and measures biological growth. D. The plantation forest shall be valued every 5 years and the increase in value shall be recognized as component of other comprehensive income. FA © 2014
A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less cost of disposal of a biological asset shall be included in A. A capital reserve within equity C. Other comprehensive income FA © 2014 B. A separate revaluation reserve D. The profit or loss for the period
An entity owns a herd of cattle. Where should changes in the fair value of a herd of cattle be recognized in the financial statements? A. In profit or loss only B. In the statement of cash flows only C. In other comprehensive income only D. In profit or loss or other comprehensive income FA © 2014
Agricultural produce 48. It is the harvested product of the entity's biological assets. A. Agricultural produce C. Harvest B. Agriculture D. Product TOA © 2013 49. Agricultural produce is A. The harvested product from biological asset. B. Valued the time of harvest the cost of production. C. All of the choices are correct regarding agricultural produce. D. Valued each reporting period fair value less cost of disposal. FA © 2014
What is the effect of the freight
What is the effect of freight-in on the cost-to-retail ratio when using the conventional retail method? Depends on the amount of the net markups. Decreases the cost-to-retail ratio.Is freight
The correct option is c. Under the retail inventory method, the charges pertaining to freight-in would be added to the cost rather than retail. Under retail, the net purchases are mentioned, excluding the listing of the items for the computation of net purchases.What is the retail method of inventory costing?
The retail inventory method is an accounting method used to estimate the value of a store's merchandise. The retail method provides the ending inventory balance for a store by measuring the cost of inventory relative to the price of the merchandise.Which inventory method approximates inventory valuation the lower of cost or market?
Retail merchants can use the retail inventory method to price inventories approximate cost or approximate lower of cost or market (LCM) instead of valuing inventory actual cost or LCM. Tải thêm tài liệu liên quan đến nội dung bài viết Higher freight in charges would cause a decrease in the cost ratio in the retail inventory method. Cryto Eth Is freight
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