51. 160 hours were paid, of which 12 were idle because of a machine breakdown. What is the idle time ratio?

A) 8.1%
B) 92.5%
C) 7.5%
D) 12.0%

Correct: C difficult IAS 2.16(b)

Idle time ratio = idle hours / hours paid = 12 / 160 = 7.5%. If you answered 8.1% you divided by productive hours (12 / 148). If you answered 92.5% you gave the productive percentage. If you answered 12.0% you gave the idle hours.

52. Opening inventory CU 24,000; purchases CU 96,000; returns to suppliers CU 3,000; issues to production CU 90,000. A physical count gives CU 25,500. What is the inventory loss?

A) CU 1,500
B) CU 25,500
C) CU 27,000
D) CU 4,500

Correct: A difficult IAS 2.16(a)

Book closing inventory = 24,000 + 96,000 - 3,000 - 90,000 = CU 27,000. Loss = 27,000 - 25,500 = CU 1,500. If you answered CU 25,500 or CU 27,000 you gave an inventory balance. If you answered CU 4,500 you added the supplier returns to the loss.

53. Closing inventory at the end of Year 1 was overstated by CU 5,000. What is the effect on profits?

A) Year 1 profit overstated by CU 5,000 and Year 2 profit understated by CU 5,000
B) Year 1 and Year 2 profits both overstated by CU 5,000
C) Year 1 profit understated and Year 2 profit overstated by CU 5,000
D) Year 1 profit overstated by CU 5,000 with no effect on Year 2

Correct: A difficult IAS 2.9

Overstated closing inventory reduces Year 1 cost of sales, overstating profit. The same figure is Year 2 opening inventory, which overstates Year 2 cost of sales and understates profit. The error reverses.

54. Three items: A cost CU 10,000 (NRV CU 12,000); B cost CU 8,000 (NRV CU 6,500); C cost CU 5,000 (NRV CU 5,000). At what value should inventory be stated under IAS 2 (item by item)?

A) CU 23,000
B) CU 23,500
C) CU 11,500
D) CU 21,500

Correct: D difficult IAS 2.9

Each item is stated at the lower of cost and NRV: 10,000 + 6,500 + 5,000 = CU 21,500. If you answered CU 23,000 you used cost. If you answered CU 23,500 you used NRV. If you answered CU 11,500 you omitted item A.

55. Inventory: opening 200 units at CU 6. Purchase of 300 units at CU 7. Issue of 350 units. Purchase of 200 units at CU 7.50. Issue of 100 units. Using the cumulative weighted average method, what is the cost of the last issue?

A) CU 700
B) CU 711
C) CU 750
D) CU 660

Correct: B difficult IAS 2.25

After the first purchase the average is (1,200 + 2,100) / 500 = CU 6.60. After issuing 350 units, 150 remain at 6.60 (CU 990). Adding 200 units at 7.50 (CU 1,500) gives 350 units for CU 2,490 = CU 7.114. The last issue = 100 x 7.114 = CU 711. If you answered CU 700 you used FIFO (units at CU 7). If you answered CU 750 you used the latest price (LIFO). If you answered CU 660 you used the earlier average.

56. A job has an allowed time of 40 hours and was done in 34 hours. The wage rate is CU 12 per hour. A bonus of 50% of the time saved, at the wage rate, is paid on top of the hours worked. What is the bonus?

A) CU 72
B) CU 408
C) CU 36
D) CU 480

Correct: C difficult IAS 2.12

Time saved = 6 hours. Bonus = 6 x 12 x 50% = CU 36. If you answered CU 72 you paid the full value of time saved. If you answered CU 408 you gave the pay for hours worked. If you answered CU 480 you gave the pay for allowed hours.

57. Which TWO of the following costs are included in the cost of inventory under IAS 2? (1) Costs of conversion. (2) Other costs of bringing the inventory to its present location and condition. (3) Selling costs.

A) (1) and (2)
B) (1) and (3)
C) (2) and (3)
D) (1) only

Correct: A difficult IAS 2.10, 2.16

IAS 2.10 includes costs of purchase, costs of conversion and other costs in bringing inventory to its present location and condition. Selling costs are excluded (IAS 2.16).

58. An employee's gross pay is CU 9,000. Deductions from the employee are CU 1,800. The employer pays additional on-costs of 12% of gross pay. What is the total cost of the employee to the employer?

A) CU 7,200
B) CU 10,080
C) CU 9,000
D) CU 10,800

Correct: B difficult IAS 2.12

Employer cost = gross pay + employer on-costs = 9,000 x 1.12 = CU 10,080. Employee deductions are paid out of gross pay and are not an extra cost. If you answered CU 7,200 you gave net pay. If you answered CU 9,000 you ignored on-costs. If you answered CU 10,800 you added the employee deductions.

59. Opening inventory 100 units at CU 4; purchases of 400 units at CU 5; sales of 380 units at CU 9. What is gross profit using FIFO?

A) CU 1,520
B) CU 1,596
C) CU 1,800
D) CU 1,620

Correct: D difficult IAS 2.25

Sales = 380 x 9 = 3,420. FIFO cost of sales = 100 x 4 + 280 x 5 = 1,800. Gross profit = CU 1,620. If you answered CU 1,520 you used LIFO (380 x 5). If you answered CU 1,596 you used the weighted average (4.80). If you answered CU 1,800 you gave the FIFO cost of sales.

60. Which TWO of the following statements about LIFO are correct? (1) It is not permitted for financial reporting under IAS 2. (2) In a period of rising prices it gives lower profit than FIFO. (3) It values closing inventory at the latest purchase prices.

A) (1) and (2)
B) (1) and (3)
C) (2) and (3)
D) (2) only

Correct: A difficult IAS 2.25

IAS 2.25 does not permit LIFO. With rising prices LIFO charges the latest (higher) costs to cost of sales, so profit is lower than FIFO. Closing inventory is valued at the earliest prices.

61. Opening inventory is 400 units at CU 6.00. Receipts are 600 units at CU 7.00, then 500 units at CU 7.50. Issues are 700 units after the first receipt and 300 units after the second. Using cumulative weighted average (perpetual), what is the closing inventory?

A) CU 3,581
B) CU 3,450
C) CU 3,750
D) CU 3,417

Correct: A difficult IAS 2: cost formulas

After the first receipt: 1,000 units at CU 6.60. Issue 700 leaves 300 units worth 1,980. After the second receipt: 800 units worth 5,730, average CU 7.1625. Issue 300 leaves 500 units x 7.1625 = CU 3,581. If you answered CU 3,450 you used a single periodic average of CU 6.90. If you answered CU 3,750 you used FIFO (500 x 7.50). If you answered CU 3,417 you averaged the three prices without weighting.

62. Opening inventory is 300 units at CU 4.00. Purchases in the period are 500 units at CU 4.50 and 400 units at CU 5.00. A total of 600 units is sold. Using periodic LIFO (as a management accounting method), what is the cost of sales?

A) CU 2,900
B) CU 2,550
C) CU 2,725
D) CU 3,000

Correct: A difficult IAS 2: cost formulas

Periodic LIFO charges the latest purchases first: 400 x 5.00 + 200 x 4.50 = CU 2,900. If you answered CU 2,550 you used FIFO (300 x 4.00 + 300 x 4.50). If you answered CU 2,725 you used the weighted average of CU 4.5417. If you answered CU 3,000 you priced all 600 units at the latest price. LIFO is not permitted by IAS 2 for financial reporting.

63. Inventory: 500 units at CU 8.00 in hand. Receive 400 units at CU 8.40. Issue 650 units. Receive 300 units at CU 8.80. Issue 400 units. Using perpetual FIFO, what is the cost of the second issue?

A) CU 3,520
B) CU 3,360
C) CU 3,447
D) CU 3,420

Correct: D difficult IAS 2: cost formulas

The first issue uses 500 at CU 8.00 and 150 at CU 8.40, leaving 250 at CU 8.40. The second issue takes 250 x 8.40 = 2,100 plus 150 x 8.80 = 1,320, total CU 3,420. If you answered CU 3,520 you priced all units at the latest receipt. If you answered CU 3,360 you used CU 8.40 for all 400 units. If you answered CU 3,447 you used a weighted average.

64. Receipts: 200 units at CU 12, then 300 units at CU 13. Issue 350 units. Receipt: 250 units at CU 14. Issue 300 units. Using perpetual LIFO, what is the cost of the second issue?

A) CU 4,050
B) CU 4,043
C) CU 4,200
D) CU 4,100

Correct: D difficult IAS 2: cost formulas

After the first issue (300 x 13 + 50 x 12), 150 units at CU 12 remain. The second issue takes 250 x 14 + 50 x 12 = CU 4,100. If you answered CU 4,050 you used FIFO (150 x 13 + 150 x 14). If you answered CU 4,043 you used a cumulative weighted average. If you answered CU 4,200 you priced all 300 units at CU 14.

65. Opening inventory: 100 units at CU 10. Purchases: 200 units at CU 12, then 100 units at CU 13. Sales: 250 units for CU 5,000. Using periodic weighted average, what is the gross profit?

A) CU 2,200.00
B) CU 2,062.50
C) CU 1,900.00
D) CU 2,083.33

Correct: B difficult IAS 2: cost formulas

Average cost = (1,000 + 2,400 + 1,300) / 400 = CU 11.75. Cost of sales = 250 x 11.75 = 2,937.50. Gross profit = 5,000 - 2,937.50 = CU 2,062.50. If you answered CU 2,200 you used FIFO. If you answered CU 1,900 you used LIFO. If you answered CU 2,083.33 you used the simple average of the three prices (11.67).

66. A worker has a guaranteed weekly wage of CU 320 or CU 0.45 per unit if higher. Output is 650 units in Week 1 and 800 units in Week 2. What is the total pay for the two weeks?

A) CU 680.00
B) CU 652.50
C) CU 640.00
D) CU 720.00

Correct: A difficult Labour remuneration

Week 1: 650 x 0.45 = 292.50, below the guarantee, so CU 320. Week 2: 800 x 0.45 = CU 360. Total = CU 680. If you answered CU 652.50 you ignored the guarantee. If you answered CU 640 you paid the guarantee in both weeks. If you answered CU 720 you paid the higher week's wage in both weeks.

67. An employee earns CU 52,800 a year for a 40-hour week of 52 weeks. Annual absences are 25 days' holiday, 8 public holidays, 6 days' sickness and 5 days' training (8 hours a day). What is the cost per productive hour?

A) CU 25.38
B) CU 28.09
C) CU 29.07
D) CU 30.56

Correct: D difficult Labour costs

Absence = 44 days x 8 = 352 hours. Productive hours = 2,080 - 352 = 1,728. Rate = 52,800 / 1,728 = CU 30.56. If you answered CU 25.38 you used all 2,080 hours. If you answered CU 28.09 you deducted holiday only. If you answered CU 29.07 you deducted holiday and public holidays but not sickness and training.

68. A company buys 5,000 units at a list price of CU 8 with a 10% trade discount. It also pays CU 1,500 carriage inwards, CU 700 import duty and CU 600 to store the goods before use. VAT of 20% on the net price is recoverable. What is the IAS 2 cost of purchase?

A) CU 38,800
B) CU 42,200
C) CU 38,200
D) CU 45,400

Correct: C difficult IAS 2 Inventories

Cost = 5,000 x 8 x 90% = 36,000 + carriage inwards 1,500 + import duty 700 = CU 38,200. If you answered CU 38,800 you included storage before use. If you answered CU 42,200 you ignored the trade discount. If you answered CU 45,400 you included recoverable VAT of 7,200.

69. Gross wages of CU 85,000 comprise direct working time of CU 60,000 (including CU 4,000 overtime premium caused by general pressure), indirect labour of CU 15,000 and idle time of CU 10,000. What is debited to production overhead?

A) CU 25,000
B) CU 29,000
C) CU 14,000
D) CU 19,000

Correct: B difficult Labour accounting

Production overhead takes indirect labour 15,000, idle time 10,000 and the overtime premium 4,000 = CU 29,000. The balance of 56,000 goes to work in progress. If you answered CU 25,000 you left the overtime premium in direct labour. If you answered CU 14,000 you omitted indirect labour. If you answered CU 19,000 you omitted idle time.

70. An employee works 48 hours at a basic rate of CU 14 an hour. Overtime is paid at time and a half and was caused by general pressure of work. What is charged to production overhead for overtime?

A) CU 168
B) CU 112
C) CU 56
D) CU 728

Correct: C difficult Labour costs

Overtime hours are charged at the basic rate to production; only the premium of 8 x 14 x 50% = CU 56 is overhead. If you answered CU 168 you charged the full overtime pay. If you answered CU 112 you charged the overtime hours at basic rate. If you answered CU 728 you gave the gross wage.

71. The time allowed for a job is 40 hours and the actual time is 32 hours at CU 15 an hour. The bonus is 50% of the time saved, paid at the hourly rate. What is the total pay for the job?

A) CU 600
B) CU 480
C) CU 540
D) CU 780

Correct: C difficult Labour remuneration

Pay = 32 x 15 = 480. Bonus = 50% x 8 hours saved x 15 = 60. Total = CU 540. If you answered CU 600 you paid for the time allowed. If you answered CU 480 you omitted the bonus. If you answered CU 780 you applied the 50% to the time allowed instead of the time saved.

72. Three items are held: A (cost 12,000; NRV 14,000), B (cost 9,500; NRV 8,200), C (cost 6,000; NRV 5,800). What is the IAS 2 carrying amount of the inventory on an item-by-item basis?

A) CU 26,000
B) CU 27,500
C) CU 28,000
D) CU 26,200

Correct: A difficult IAS 2 Inventories

Each item is stated at the lower of cost and NRV: A 12,000, B 8,200, C 5,800 = CU 26,000. If you answered CU 27,500 you used total cost. If you answered CU 28,000 you used total NRV. If you answered CU 26,200 you wrote down B but not C.

73. Which TWO of the following are correct for FIFO compared with LIFO when prices are rising? (1) FIFO reports a higher profit. (2) FIFO values closing inventory closer to current replacement cost. (3) FIFO gives a lower closing inventory value. (4) FIFO gives a higher cost of sales.

A) (1) and (3) only
B) (2) and (4) only
C) (1) and (2) only
D) (3) and (4) only

Correct: C difficult IAS 2: cost formulas

FIFO charges the older, lower costs to sales, so cost of sales is lower and profit higher, and the remaining inventory carries the latest prices. If you chose (3) or (4) you reversed the effect of rising prices.

74. Which TWO of the following are correct? (1) Under FIFO, periodic and perpetual systems give the same cost of sales. (2) Under weighted average, periodic and perpetual systems usually give different costs of issues. (3) Under LIFO, periodic and perpetual systems always give the same cost of sales. (4) Under FIFO, closing inventory is valued at the earliest purchase prices.

A) (1) and (3) only
B) (1) and (2) only
C) (2) and (4) only
D) (3) and (4) only

Correct: B difficult Inventory systems

FIFO always draws on the oldest layers, so timing does not matter. A perpetual average changes after each receipt, while a periodic average uses the whole period. LIFO depends on what is in stock at each issue, so the two systems usually differ. If you chose (4) you described LIFO closing inventory.

75. Which TWO of the following are correct? (1) Wages of machine operators working on production are direct labour. (2) The cost of idle time is charged to production overhead. (3) Overtime premium is always a direct cost. (4) A supervisor's wages are direct labour.

A) (1) and (3) only
B) (1) and (2) only
C) (2) and (4) only
D) (3) and (4) only

Correct: B difficult Labour costs

Operators' working time is direct labour and idle time is an overhead. If you chose (3) you treated a general overtime premium as direct, whereas it is direct only when caused by a specific job or customer. If you chose (4) you classified supervision as direct, which is indirect labour.