Tag: closing stock

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Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Goods given as charity should be credited to _______________.

  1. Purchases account

  2. Charity account

  3. Sales account

  4. Trading A/c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Purchases will be credited if goods are given as charity. When accounting for goods given as charity, purchases are reduced with the exact cost of goods contributed. The amount is reduced from purchases in the trading account. It is shown as an expense on the debit side of the income statement and the purchase account is credited.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Linux Ltd. maintains the inventory records under perpetual system of inventory. Consider the following data pertaining to inventory of Linux Ltd. held for the month of March 2005:

Date Particulars Quantity Cost per unit
Mar. 1 Opening inventory $15$ $400$
Mar. 4 Purchases $20$ $450$
Mar. 6 Purchases $10$ $460$

If the company sold $32$ units on March 24, 2005, closing inventory under FIFO method is:

  1. Rs. $5,200$

  2. Rs. $5,681$

  3. Rs. $5,800$

  4. Rs. $5,950$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Under FIFO, the 32 units sold are taken from the earliest stock: 15 units from March 1 (15 * 400 = 6000) and 17 units from March 4 (17 * 450 = 7650). Remaining stock: 3 units from March 4 (3 * 450 = 1350) and 10 units from March 6 (10 * 460 = 4600). Total = 1350 + 4600 = 5950.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Inventory is valued at _____________.

  1. Cost price

  2. Replacement price

  3. Both (a) and (b) whichever is lower

  4. Both (a) or (b) whichever is higher
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Inventory is valued at the lower of cost or net realizable value (market value) to adhere to the principle of prudence, ensuring assets are not overstated.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

While making an adjusting entry in respect of closing stock, we debit ______________.

  1. Closing stock

  2. Trading account

  3. Purchases account

  4. Sales account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The closing stock is the unsold goods lying in the concern. Generally, the firm takes out a list of all stocks, remaining unsold along with their value. The stock is always valued at cost or market price whichever is lower. Generally, the closing stock will not appear in the Trial Balance and it lies in the adjustment. When it lies in the adjustment, adjustment entry has to be passed before the preparation of Final Accounts. The Entry will be

Closing stock A/c    Dr.        xx

        To Trading A/c                  xx

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

As per AS-2 historical cost of inventory includes ___________.

  1. Cost of purchase

  2. Cost of conversion

  3. Other cost incurred in bringing the inventories in their present condition

  4. All of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

AS-2 states that the cost of inventory includes all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

In which of the following methods, inventory is valued at the latest prices prevailing in the market?

  1. LIFO

  2. FIFO

  3. Both (a) and (b)

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

FIFO (First-In-First-Out) assumes that the oldest items are sold first, meaning the inventory remaining on the balance sheet consists of the most recently purchased items, reflecting current market prices.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Net realizable value means _______________.

  1. Sales less sales returns

  2. Sales less cost incurred necessarily to make the sale

  3. Sales less gross profit margin

  4. Sales less cost of purchase
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In the context of inventory, net realizable value is the expected selling price in the ordinary course of business minus any cost of completion, disposal and transportation.

Hence, option B is correct.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Inventories are assets __________________.

  1. Held for sale in the ordinary course of business

  2. In the production process for such sale

  3. In the form of material or supplied to be consumed in the production process or in the rendering of service

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to accounting standards, inventory includes assets held for sale, assets in the production process for sale, and materials/supplies to be consumed in production or service rendering.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Cost of inventories includes ___________________.

  1. Direct Material $+$ Direct Expenses

  2. Direct Labour $+$ Direct Expenses

  3. All cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition

  4. Direct material only
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The cost of inventory is comprehensive, including purchase costs, conversion costs (labor and overheads), and any other costs required to bring the inventory to its current state.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which one of the following methods of inventory valuation matches current cost with current revenues?

  1. Last in first out (LIFO)

  2. Fist in first out (FIFO)

  3. Simple average

  4. Weighted average
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

LIFO matches the most recent costs against current revenues, which is often cited as providing a better matching of current costs to current revenues in inflationary environments.