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

Net realizable value is ____________________.

  1. The estimated selling price less the estimated costs of the sale

  2. Total sales

  3. Sales minus sales return

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

Net realizable value is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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

FIFO is advisable in case of _____________.

  1. Rising prices

  2. Falling prices

  3. Constant prices

  4. Fluctuating prices
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In periods of falling prices, FIFO results in a lower ending inventory value compared to other methods, which is generally considered a conservative approach.

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

The success of perpetual inventory system depends upon ______________.

  1. Placing order for materials at regular intervals

  2. Exercising control over the issue of materials

  3. Recording the receipt and issue of materials immediately after each transaction

  4. Recording the receipt of materials by storekeeper in the 'Bin Cards'
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The perpetual inventory system requires continuous recording of all receipts and issues of materials to maintain an up-to-date balance of inventory at all times.

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 statements are correct?
(i) Inventory includes raw materials, finished goods and goods in process
(ii) Inventory is a part of the working capital
(iii) Inventory includes goods likely to be purchased in the coming months
Select the correct answer using the codes given below.

  1. I, II and III

  2. II and III

  3. I and III

  4. I and II
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Inventory includes raw materials, finished goods, and work-in-process (i). It is also a significant component of working capital (ii). Statement (iii) is incorrect because inventory represents goods already held, not future purchases.

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 withdrawn by the proprietor for his personal use are_________. 

  1. shown as a deduction from the purchases

  2. shown as a deduction from the sales

  3. treated as sales at cost price

  4. added to the purchases
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When a proprietor withdraws goods for personal use, it is treated as a reduction in the total purchases made by the business, as these goods are no longer available for sale.

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 of the following is not classified as inventory in the financial statements?

  1. Finished goods

  2. Work-in-progress

  3. Stored and spares

  4. Advance payments made to suppliers for raw materials
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Advance payments to suppliers are classified as current assets (prepayments or advances), not as inventory, because the goods have not yet been received or controlled by the entity.

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

Rs. $1,250$ paid for the residential telephone bill of the proprietor which of these accounts will be debited _________________.

  1. Household A/c

  2. Drawing A/c

  3. Telephone A/c

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

Business entity concept of accounting defines that the owner and the business are considered two separate entity in the eyes of law. Hence any amount is spent from the business for personal use, has to be debited to drawing account. Drawing will be deducted from capital account. 

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

State with reasons whether the following statement is true or false:
Damaged inventory should be valued at cost or market price; whichever is lower.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Damaged or obsolete inventory must be written down to its net realizable value if that value is lower than its cost, following the prudence principle.